Sizing Definition
Size Matters
Sizing is the rule for deciding how many shares or contracts to buy.
Extra Insight:
Sizing is critical to risk management, worthwhile returns, and also making comparisions between backtesting runs. For the backtesting runs, I use a very common and straightforward sizing:
- If there is no stop loss for the strategy under test, my backtesting trade size is 1000 shares (and the amount at risk is the total amount of the trade).
- If there is a stop loss, my backtesting trade size is the nominal risk amount of $1000 divided by the distance from the expected entry price to the stop price. If its a next-day market order then today’s close serves as the expected entry price. This way, the risk amount is constant for every trade but the trade size varies in both dollar amount and number of shares.
(Backtesting Blog is an Amazon Associate
Updated 11/13/08.
October 14th, 2008 Filed under GlossaryTags: backtesting, expectancy, loss, management, risk, sizing, stop, strategy, trade size, trading
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