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If you're still looking for an edge in the markets, mechanical trading systems are the best way to get it. Learn more.

Market System Analyzer (MSA) is a software application for traders that optimizes 12 different position sizing methods. The software is designed to increase returns and reduce risk for existing trading systems and methods. Market System Analyzer can be used to evaluate trading systems or methods, explore different position sizing options, optimize trade sizes, and perform position sizing calculations on a trade by trade basis.

Try MSA for free. Click here.

Position sizing is the process of determining the number of shares or contracts to trade. Two of the more popular methods are fixed fractional and fixed ratio position sizing. Both of these methods have an adjustable parameter that determines how quickly contracts or shares are added as the account equity grows or trading profits accumulate. A suitable value for the position sizing parameter -- for example, the risk percentage of fixed risk position sizing -- isn't always obvious. Position sizing optimization is a formal and automatic method for choosing the position sizing parameter based on specific trading objectives.

The position sizing optimization feature of Market System Analyzer is accessed from the Analysis menu:

The Analysis menu contains the Optimize Position Sizing command.

This command opens the Optimize Position Sizing dialog window, which allows the user to select the performance measure to maximize and an optional drawdown constraint. The user can also choose whether to optimize over all trades in the current sequence or over a sliding window of trades. The optimization can be performed over the current sequence of trades or using Monte Carlo analysis. There is also a choice of search methods.

Selecting the Optimize Position Sizing command brings up the Optimize Position Sizing dialog.

If "Sliding window" is chosen, the optimization will be repeated for each window as it slides forward one trade at a time. For example, suppose there are 100 trades in the current sequence, and the sliding window is 50 trades in length. The first optimization will be performed over trades 1 - 50. The optimization window then slides forward one trade so that the next optimization is over trades 2 - 51. The third optimization will be over trades 3 - 52, and so on until the last optimization is performed over trades 51 - 100.

In sliding window optimization, an optimal result is obtained for each window. Market System Analyzer optionally plots the main chart window with the sliding window results applied in a walk-forward manner if desired. For example, the parameter value optimized over trades 1 - 50 would be applied to calculate the number of contracts for trade 51. In this way, the optimization results can be tested out-of-sample, without the benefit of hindsight. This feature provides a nearly automatic walk-forward optimization capability.

Clicking the Calculate button initiates the optimization. Once the optimal results are found, they're displayed in the Optimization Results window, as shown below.

Example of optimal position sizing results generated by Market System Analyzer.

To learn more about MSA, click here.

To learn how Market System Analyzer makes it easy to perform Monte Carlo analysis, click on the Next button at the bottom of the page or click the Buy Now button below to download your own copy of Market System Analyzer.

Market System Analyzer 2/3

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For a general article on position sizing optimization, click here. For a full list of available trading articles, select the Article Library link at left.

Did you know?

Market System Analyzer lets you restrict any analysis, including position sizing optimization, to a subset of trades. The rest can be saved for out-of-sample testing. You can also perform automatic walk-forward optimization in Market System Analyzer.