Position Sizing

"You only need rules
with a positive expectation."

The notion that a positive expectation is all that is necessary to bring success trading commodities is quite wrong.

It is not that difficult to find rules that show a positive expectation but that is only the beginning.

To succeed in the commodity markets you will need a complete system, not just a set of rules with a positive expectation.

Scarcely five percent of traders manage to get as far as producing a complete system that includes all the trade management functions and recognizes their own trading goals.

It is within this small minority that all the winning commodity traders can be found.

Of course, your system rules must show a positive expectation at the outset but it is the money management function that will bring out the capabilities of the system and magnify its performance.

Without sound money management, even systems with a positive expectation are likely to lose money.

It is the money management process that implements risk resonant position sizing and ensures that all available opportunities are taken without the danger of overtrading.

More often than not, newcomers to trading do not become aware of this. This is rarely their fault because it is not brought to their attention. But the outcome is still disastrous.

Oblivious to all the dangers and missed opportunities, most newcomers join the majority of losing commodity traders, when this might have been avoided had they received better advice at the outset.

To be a successful commodity trader, you need more than rules with a positive expectation. You need a complete, fully evaluated system.

 

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Copyright David Bromley 2006
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