Need to know how much to put on your next trade?
You can figure it out with 95% reliability using this
Consider this: Jane and Joe started
trading the same Standard &
Poor’s 500 futures trading
system at the same time. They
each began with $100,000 and
both followed the system
exactly. But 12 months later,
Joe’s account was worth $200,000, while Jane’s
account was worth only $50,000. What was the
difference in their trading? Position sizing.
As his account equity increased, Joe increased the
number of contracts in a near-optimal manner,
resulting in a sharp runup in equity. Jane,
on the other hand, increased her position
size too quickly, so when the inevitable
string of losses occurred, her account
plunged, leaving her worse off than if
she had risked less on each trade.