For foreign exchange speculation , a small position can make a stable profit, how to increase the position?
For this question, answer as follows:
1. What is expansion and contraction? After a period of profitable trading, the amount of funds in the account has increased on a large scale. If the original trading position size is still maintained at this time, it is equivalent to reducing Leverage reduces the efficiency of capital use. Therefore, at this time, it is necessary to expand the position – to expand the size of the position.
On the contrary, after a period of continuous loss-making transactions, the amount of funds in the account decreases. It increases the potential risk of funds. Therefore, at this time, it is necessary to reduce the position—-reduce the size of the position.
The meaning of k expansion is that in In the continuous profit state, it can be guaranteed that the same profitability corresponds to the same capital growth rate. Without expansion, the same profitability can only correspond to the same capital profit.
When your trading can achieve positive returns with limited risks and under control in the long run, it makes sense to expand and shrink positions.
If your trading has negative returns in the long run, then it will be difficult for you to expand your position, and you will keep shrinking your position to the smallest trading unit.
In addition, the risk you take must be limited and controllable. For example, a fixed stop loss amount relative to the amount of funds, or a fixed Stop loss ratio, etc. If you don’t have the concept of stop loss, or every loss is big or small, it is not suitable for expanding and shrinking positions.
Of course, there is another condition, your capital has a certain scale, and you still have the willingness and ability to continue to expand. Third, determine the size of the position
Generally speaking, when we open an account and prepare for trading, we must first determine the size of a position. Let me take foreign exchange trading as an example to illustrate the calculation method in detail:
Suppose my account is initially The fund is $10,000. )
My trading system has several conditions: 1. The average stop loss point is 100 points.
2. It is necessary to allow 20 consecutive losses (equivalent to 5% of each loss).
Here, I will simplify the problem first, and only discuss the trading of single-species single-strategy. Calculation:
average loss on a single transaction: $10,000/20 times = $500
position size : $500/(100 points*$10 pip value)=0.5 lots-
0.5 lots*100,000 dollars (one lot value)/10,000 dollars (account principal)=5 times leverage
After calculation, I determined that each transaction is 0.5 lots, corresponding to 5 times leverage.
The calculation of leverage is to prevent the leverage ratio used from exceeding the maximum leverage available in the account. Using the average stop loss points instead of calculating based on the actual set stop loss points is to avoid enlarging the position because the expected stop loss is too small. In fact, you Whether the loss is really stopped, or whether you can stop the loss in time is uncertain. You may not stop the loss, or you may not be able to stop the loss, so don’t take risks on the position.
Therefore, this requires the use of position expansion and contraction.
Fourth, the timing of position expansion and contraction Then, I will When to expand and shrink positions?
There are usually two methods.
One method is to fix a time period. For example, daily/monthly/quarterly/ Etc. every year.
If it is an ultra-short-term transaction, you can choose a small cycle. If it is a medium-to-long-term transaction, you can choose a larger cycle.
During the cycle, you may passively increase your leverage ratio due to losses. However, there are 20 consecutive losses as a margin of safety, and short-term expansion of leverage is also conducive to fund recovery. Correspondingly, if you make continuous profits, your leverage ratio will also increase. It will be passively reduced, and it can also play a certain protective role in the withdrawal of funds after continuous profits.
If this method is used, when determining the period of adjusting the expansion and contraction, it should be selected in combination with the capital curve period of your trading system.means , so that the adjustment cycle is approximately equal to a growth and fall cycle of your trading system capital curve.
The second method is to adjust according to the percentage increase or decrease of account funds.
For example, I set a 20% cut-off point. Funds increase by 20% to do a position expansion calculation. If the fund loses 20%, do a short position calculation. You may have some doubts about doing this, because it always expands its position when it makes a profit and shrinks its position when it loses. Psychologically it seems more difficult to accept.
Let me briefly explain this:
First of all, it is difficult for us to predict whether the next transaction will be a profit or a loss. So there is really no need to worry about the profit of this transaction. If you expand your position, you will lose a lot in the next transaction.
Secondly , if your trading system is positive income, and the retracement is less than 20%, even if the next transaction loses, in an adjustment calculation cycle You will still have a high probability of positive capital growth. Of course, your system may backtest more than 20%, so you can set this adjustment percentage based on the actual situation. (However, if it is me, I would rather find a way Solve the problem of excessive retracement.
Third, take the position example calculated above, when my funds reach 12,000, I want to recalculate Position size. My principal calculation benchmark is 12,000, but in fact my account funds may have reached 12,400 due to a profit, and this excess amount of funds is also a part of the margin of safety. So don’t worry too much.
Using 100% capital changes as the opportunity to expand and shrink positions can better control risks and improve capital utilization. If the profitability is stable and the demand for capital growth is large, this method is more appropriate.
Calculation and precautions for position expansion and contraction Generally speaking, the calculation method for position expansion and contraction is the same as the calculation method for “determining position size”. But there are some caveats that need to be explained.
I mentioned before, every time the expansion and contraction adjustment is triggered, the account funds are not just at the adjustment cut-off point, and usually the capital growth will exceed the cut-off point. The decline in funds will be below the cut-off point. At this time, when calculating and adjusting the position, it should be calculated based on the amount of funds at the cut-off point, not the actual amount of funds. Example: The initial capital is 10,000. 20% adjustment for capital growth or decline. The current account funds are 11900. After a profitable transaction is closed, the account fund is 12400.
Calculation:
The average loss of a single transaction: 12000 US dollars (10000*120% cut-off point) / 20 times = $600
Position size: $600 / (100 points * 10 points) = 0.6 lots This calculation increases the margin of safety for short-term retracements.
if you keep making money, how will you calculate next time? I suggest 12000*120%=14400 as the next adjustment cut-off point.
Instead of using 10000*140%=14000 as the cut-off point for adjustment.
If it is a short position, the first time is 10,000*80%=8000. The second time 8000*80%=6400.
This is because when you expand your position, the position increases, and it is easier to make a profit of 2000 now than before. But it is equally difficult for the 100% profit of 20%.
There is one more point to explain: usually our account funds have two expressions, one is the balance and the other is the net value. The relationship between the two is as follows:
net value = balance + position profit and loss
your position is floating profit, the net value is greater than the balance. When your position is a floating loss, the net value is less than the balance.
In this case, the smaller of the balance and net value should be compared with the cut-off point as the basis for whether the adjustment qualification is met.
If the balance is 12300 and the net value is 11900, then you are not qualified for adjustment at this time.
Another example is a balance of 11,800 and a net worth of 12,200, which is also not eligible for adjustment. If the balance is 8200 and the net worth is 7800, this is eligible for adjustment.
When your strategy sends a trading signal, you need to calculate the size of the trading position. At this time, you need to compare the balance and net worth The relationship between the three, the cut-off point, to judge whether it meets the qualifications for expanding and shrinking positions. Six. The situation of multi-variety and multi-strategy
The previous discussion is the position size and adjustment of expansion and contraction of single-species single-strategy . However, in actual transactions, more varieties are involved, and even multi-variety and multi-strategies are involved.
This situation will become quite complicated. I will briefly talk about the precautions, so I won’t expand on it. If it is expanded, I really can’t finish it.
The first point, you need to analyze the correlation of different strategies of different varieties. For strategies with high correlation There must be a position reduction or avoidance measures. In particular, it is important to note that whether it is highly relevant or not should not be taken for granted.
The second point is to control the total position or control the total leverage (this is what we used to The reason for calculating the leverage ratio), even in the case of low correlation. For example, I use a maximum leverage of 20 times for foreign exchange settings. Then according to the previous calculation, I can trade up to 4 varieties or strategies at the same time.YSHX
The third point is to set the initial capital amount in units of varieties and strategies, and then adjust the expansion and contraction of single varieties and single strategies according to the actual profit and loss of single varieties and strategies. The advantage of this is that the survival of the fittest can be achieved, and the varieties or strategies that have performed poorly for a long time in actual transactions will gradually be reduced. In addition, it also avoids the repeated friction that the position increase caused by the profit of A type is used for B type. In short, each expands its own, and only the profitable variety strategy expands its position. 7. Moderately reduce leverage
When the amount of funds increases to a certain level, or the growth of funds is too fast and you feel unmanageable , it is necessary to slow down the expansion. At this point, you still have to listen to your inner call and don’t act recklessly.
The specific operation can be achieved by reducing the leverage ratio appropriately.yunshfx
For example, I calculated that the leverage ratio of the corresponding position is 5 times for the previous 10,000 funds. Then when my capital increases by 5 times relative to the initial capital, the leverage ratio will be reduced by 0.5 times.
When 8 M is 50,000 funds, the position is 0.5 lots*5 times*90%=2.25 lots. When the capital is 100,000, the position is 0.5*10*0.8=4 lots. The capital growth multiple and leverage ratio reduction here are just examples, and should be considered in consideration of your actual initial capital amount and leverage ratio. 8. Position management and technical analysis
Given that the vast majority of trading strategies are established based on technical analysis, here is a brief discussion of fund management and technical analysis. Yun Shang Hui Xin
Should we use technical analysis to determine positions? My advice is don’t have to.
In terms of position management, set stop loss, control stop loss, control the maximum leverage ratio, preset the number of consecutive losses, these series of measures are all for the safety of capital risks Margin.
In terms of trading strategies, the logical rationality of the strategy itself, the long-term positive returns of the strategy, and the largest historical drawdown statistics of the strategy all provide trading risks margin of safety.
Based on this, there is really no need to adjust positions through market analysis, forecasting trend shocks, etc. The future trend is inherently difficult to predict, otherwise it would not be possible to resist risks through trading strategies and position management. Moreover, trends and shocks are not alternating cycles, and subjective predictions may be self-defeating. Another point is that the effectiveness of technical analysis is directly proportional to the time period used. Initial technical analysis is applied on daily or weekly charts. Looking at it now, technical analysis is still valid in such a time period, but in a smaller time period, the effectiveness of technical analysis will be extremely limited as the signal doubles and the impact of large funds and unexpected events on prices increases. attenuation. Therefore, it is meaningful to reasonably determine the time period frame, use technical analysis reasonably and prudently, and cooperate with position management.Yun Shang Hui Xin Limited
