ridingthewav 

Would there be a practical application of this approach for position sizing to trading stocks, not futures? For example, modifying the Risk Adjusted Optimal F spreadsheet to incorporate an Entry, Stop Loss, Take Profit Price on a single trade, where the calculation of those represents the Average Win/Average Loss (per share)? Also, I'm a bit confused as to the commission "Points" how does this translate into dollar value per trade? Is it representative of a percentage of the trade eg 1pt = 1%? And same question as to slippage, does points represent percentage?

I am not sure who developed that tool, but they would be the person to ask. I did not develop it.

Thanks a lot for interesting discussions and work on excel..please see below an interesting paper on experiment in this direction.. enjoy reading🙂

Freedom303 

please see below an interesting paper on experiment in this direction.. enjoy reading🙂

WOW. Amazed that finance students/professionals would perform that badly. Love the conclusions.

Probably good reading for most traders. Unfortunately trade sizing is really a function of probability/statistics, which is often something many are not good at.

Yes i find it more interesting that.. sometimes we trade just out of boredom..our brain seeks action and dopamine.. excitement of being right and anger of being wrong.. both🙂, so i am doing since months an experiment .. take crazy and wild trades on TV and more measured moves on NT Sim in parallel..its working so far but interesting would be when i will switch to NT Live🙂 lets see ..however excel here in the thread was an eyeopener .. u can only bet x% for saying long in game.. its about staying long .. focusing on process, results will be a side effect..( easier said than done lol)
What an opportunity trading presents to us to look inside our mind.. all spaces .. glad to have it🙂

Freedom303 

Thanks a lot for interesting discussions and work on excel..please see below an interesting paper on experiment in this direction.. enjoy reading🙂

This is a nice illustration of the importance of money management. In Ryan Jones' The Trading Game there is a similar experiment with coin flip and 1:2 risk-reward. Heads - you lose $1, tails - win $2. Depending on the percentage of capital you risk on each flip the end result is vastly different. I ran similar simulation in Excel and got the same results.

In the movie Rounders Matt Damon's character makes a point. Poker, in essence, is the game of chance. However, every year it is the same ten guys sitting around the table at the world tournament final. I think trading is similar. Everyone of us is dealt the same cards, yet only a few make it, and even fewer make it big. Food for thought.

Small Dog 

This is a nice illustration of the importance of money management. In Ryan Jones' The Trading Game there is a similar experiment with coin flip and 1:2 risk-reward. Heads - you lose $1, tails - win $2. Depending on the percentage of capital you risk on each flip the end result is vastly different. I ran similar simulation in Excel and got the same results. In the movie Rounders Matt Damon's character makes a point. Poker, in essence, is the game of chance. However, every year it is the same ten guys sitting around the table at the world tournament final. I think trading is similar. Everyone of us is dealt the same cards, yet only a few make it, and even fewer make it big. Food for thought.

Too bad Ryan did not follow his own own advice - according to his broker.

That the dominant story, isn't it? Not that he was playing a coin throwing game with his broker. Breaking the rules that were tested brings less than optimal results. I've done it myself a couple of times.

ridingthewav 

Would there be a practical application of this approach for position sizing to trading stocks, not futures? For example, modifying the Risk Adjusted Optimal F spreadsheet to incorporate an Entry, Stop Loss, Take Profit Price on a single trade, where the calculation of those represents the Average Win/Average Loss (per share)? Also, I'm a bit confused as to the commission "Points" how does this translate into dollar value per trade? Is it representative of a percentage of the trade eg 1pt = 1%? And same question as to slippage, does points represent percentage?

I think position sizing is most relevant (crucial) for leveraged instruments. I am not sure if it makes any difference If you're buying stocks at nominal value.

Small Dog 

I think position sizing is most relevant (crucial) for leveraged instruments. I am not sure if it makes any difference If you are buying stocks at nominal value.

@Small Dog,

You raise a nuanced point worth exploring deeper. Position sizing absolutely matters for stocks too - the math just plays out differently.

The risk of ruin fixed fractional betting formula applies regardless of whether you are trading leveraged futures or buying stocks outright. The difference is in how quickly ruin can arrive. With your ES, CL, and NQ positions, a 2% account risk per trade with 20:1 leverage creates dramatically different drawdown dynamics than 2% risk on unleveraged equity positions.

Here is where it gets interesting: the risk of ruin formula trading Kelly criterion reveals that even at optimal f, you still face a 1-in-3 probability of halving your account before doubling it. Most experienced traders recommend fractional Kelly - perhaps 25-50% of the calculated optimal. This reduces that halving probability to roughly 1-in-9 at half-Kelly.

The wizard of odds risk of ruin formula exponential relationship shows why this matters for stocks too: drawdown recovery is exponential, not linear. A 50% drawdown requires 100% gain to recover. Even without leverage, concentrated stock positions can produce these drawdowns. The 2000 tech bubble and 2008 financial crisis proved that unleveraged stock portfolios can suffer futures-like devastation.

The practical difference:

• Leveraged instruments: Position sizing determines survival timeframe in weeks/months
• Unleveraged stocks: Position sizing determines survival timeframe in months/years

Both eventually face the same mathematical reality Tomas Stridsman described - given enough time, probability of ruin approaches certainty without proper sizing. The fixed fraction betting formula simply buys you more runway with unleveraged positions.

For your multi-market approach across ES, SI, CL, YM, RTY, NQ, and 6B - correlation risk compounds this further. Seven leveraged positions that correlate during a volatility spike can turn prudent individual position sizing into catastrophic portfolio risk.

The question is not whether position sizing matters for stocks - it is whether you have the luxury of learning that lesson slowly or quickly.

TGIF! Have a good weekend!

-- Fi
"The market does not care what you believe. It only responds to what you do."