Higher risk doesn’t mean you’ll always get the higher return. You should adjust your risk depending on your objectives. This shows how important the bet sizing is. Despite the same result on the trade people would have different ending on their equity. Only position sizing was involved. In this article, hopefully you will see how important position sizing is. You can make a lot of money or go bankcrupt. This depends on your position sizing strategy.


Global position sizing strategies. According to the gamblers there are two types of position sizing.

  • Anti-martinglale strategy
  • Martingale strategy

Martingale strategy is when you increase your bet size when you lose. The typical one is when you double up when you lose.

Ex. You go to the casino and bet on black in the roulette. Every time you lose you will double your bet size. Meaning when you eventually win you win a dollar. There is a little problem in this strategy because you have little over 50% chance of winning. In over a 1000 tries you can have 10 streaks you would be risking $4,096 to get back to even. Generally, these kinds of strategies do not work. What works are strategies when you increase your bet size as you win. Anything that is based on your equity (percentage). This type of strategy is called anti-martingale. Anti-martingale strategies, where size goes up as you win.


Three types of equity models

  • Total equity


Risking 1%

Capital $100,000

Position at risk $1,000

  • Core equity

Position sizing is based upon cash and the value of your open positions






  • Reduced total equity is only based upon your cash equity plus the money you lock in when you move your stops

R represents your initial risk when you enter into a position. R is determined by the difference between your entry price and your stop or bail out point. Your goal is to have losses of 1R or less and profits that are large R-multiples. Expectancy is a measure of how good your system is.

Expectancy = sum of r/no. of trades

The known R-multiple from a sample of trades can be used to simulate that system.

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