Position Sizing in Trading
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- Live Trading
- Learning Track
- Prerequisites
- Syllabus
- About author
- Testimonials
- Faqs
Apply Position Sizing Strategies
- Implement and backtest the position sizing methods such as Kelly, CPPI, TIPP, Volatility targeting, on a sample index reversal strategy.
- Explain the inherent risk in Kelly and Optimal F.
- Describe the need for money management and explain various money management terms.
- Paper trade and live trade using the position sizing techniques covered in the course.
- List and explain basic position sizing techniques such as fixed units, fixed sum, fixed fraction and fixed percentage.
- Plot the leverage and portion of capital used for each position sizing technique.
- Describe the hidden risks in financial markets such as non-stationarity and fat-tail distribution.
- Apply simulation methods such as Bootstrapping and Monte Carlo.
- Create a conservative framework for position sizing for calculating the capital to allocate.

Skills Required to Learn Position Sizing in Trading
Position Sizing & Simulation Methods
- CPPI & TIPP
- Volatility Targeting
- Kelly & Optimal F
- Bootstrapping & Monte Carlo
- Martingale
Python
- Pandas
- NumPy
- Matplotlib
- Loops
- Functions
Money Management Terms
- Drawdown & Volatility
- Trade Size
- Returns
- Win/Loss Ratio
- Trading System's Expectancy

learning track 7
This course is a part of the Learning Track: Portfolio Management and Position Sizing using Quantitative Methods
Course Fees
Full Learning Track
These courses are specially curated to help you with end-to-end learning of the subject.
Course Features
- Community
Faculty Support on Community
- Interactive Coding Exercises
Interactive Coding Practice
- Capstone Project
Capstone Project Using Real Market Data
- Trade & Learn Together
Trade and Learn Together
- Get Certified
Get Certified
Prerequisites
To start with the course, you need to have a basic understanding of the financial market terminologies. We have used Python as a programming language to teach the concepts. However, Python is not a mandate to do this course. You can also apply the concepts in spreadsheets or any other programming language you are comfortable with.
Position Sizing in Trading Course
- IntroductionPosition sizing is not a magical wand which can make any strategy profitable. In this section, you will understand the course structure, and the various teaching tools used to make your learning experience smooth and untroubled. These tools include videos, quizzes, strategy codes and capstone projects. The interactive methods used help you to not only understand the concepts, but also how to implement the strategies in the live markets.Course Introduction5m 7sCourse Structure3m 41sCourse Structure Flow Diagram10mGetting Started With Quantra4m 9s
What is Position Sizing and Money Management?
It is always amazing to hear about stalwarts putting all their money on one asset and winning big. Unfortunately, these are more exceptions than the norm. A rational trader would always diversify and allocate capital to different trades. Position sizing techniques have been developed to help the trader allocate their capital efficiently. In this section, you will be introduced to the concept of position sizing and what it can and cannot do.Importance of Position Sizing and Money Management1m 50sPrimary Purpose of Money Management2mIdeal Allocated Capital2mDrawback of Absolute Fixed Allocation2mAllocation of Capital2mUse of Money Management2m 38sObjective of Successful Money Management2mProperties of Coin Toss Game2mIdeal Bet Size2mTransformation of Profitable to Unprofitable Strategy2mPosition Sizing Terms
Before moving to position sizing techniques, it is crucial to understand the position sizing performance measures. In this section, you will learn about the common position sizing measures such as trading system expectancy, win/loss ratio and trade size. Along with these, you will also learn about the most common measures used in risk management, such as volatility and maximum drawdown.Performance Measure Terms3m 41sTrade Size2mWin/Loss Ratio2mTrading System Expectancy2mPercentage of Winning Trades2mTrading Systems2mLeverage10mBroker and Asset Leverage2mTotal Leverage Calculation2mRisk Management Terms1m 15sVolatility2mVolatile Strategy2mMaximum Drawdown2mCalculate Maximum Drawdown2mUsing Jupyter Notebook1m 54sCalculate Volatility & Drawdown in Python10mCalculate Volatility5mCalculate Drawdown5mTrading Strategy
To apply the position sizing techniques, you need to have a trading strategy. In this section, you will learn about the pillars of the index-reversal strategy. The trading rules of the index-reversal strategy are also covered in this section.Index Reversal Strategy5m 13sPopularity of Indices2mThe Behaviour of Asset Price2mPillars of the Index Reversal Strategy2mShort-term Reversal Strategy2mStrategy Implementation3m 8sOvernight Returns vs Intraday Returns2mCapturing the Overnight Returns2mPrice Jump After Local Minimum Price2mIndex Reversal Strategy Trading Rules2mLocal Minimum Day2mMarket Exposure in Index Reversal Strategy2mDetermining Strategy Entry Signal2mTrading Instruments10mAdditional Reading for Trading Strategy10m- Implementation of the Trading StrategyIn this section, you will learn to apply the index-reversal strategy in a Jupyter notebook. The strategy performance metrics are also calculated and a utility function is created to make the analysis of other strategy returns easier.Index Reversal Strategy Implementation10mTrading Signals5mCumulative Strategy Returns5mPortfolio Value5mAnnualised Returns5m
Basic Position Sizing: Fixed Units and Fixed Sum
This section will introduce you to one of the two most common position sizing techniques which are fixed units and fixed sum. You will learn about the intuition behind fixed units and fixed sum methods with their pros and cons. Along with the concept, you will also learn to apply both methods on the index reversal strategy and analyse how these position sizing methods affect the strategy performance.Fixed Units and Fixed Sum4m 14sNumber of Units2mOverall Weight2mDisadvantages of Fixed Units Method2mNumber of Units Using Fixed Sum Method2mAdvantages of Fixed Sum Method2mImplementation: Fixed Units2m 18sNumber of Units in the Fixed Units2mLeverage in Fixed Units2mFixed Units Implementation10mFixed Units5mImplementation: Fixed Sum1m 22sFixed Sum Leverage and Portion of Capital2mNumber of Units in Fixed Sum2mFixed Sum Implementation10mFixed Sum5m- Basic Position Sizing: Fixed Percentage and Fixed FractionFixed percent and fixed fraction are position sizing techniques, where you spend only a fixed portion of the available capital to place trades. Both these methods will be introduced in the section with the implementation of the fixed percentage method on the index reversal strategy.Fixed Percentage and Fixed Fraction2m 27sNumber of Units Using Fixed Percentage2mEffect on Trading Size2mNumber of Units Using Fixed Fraction2mImplementation: Fixed Percentage46sReturns and Drawdown in Fixed Percentage2mLeverage in Fixed Percentage2mPortion of Capital in Fixed Percentage2mFixed Percentage Implementation10mFixed Percentage5m
Volatility Targeting
Volatility targeting is an advanced position sizing technique. As the volatility of the underlying goes up, the trade size is scaled down. In this section, you will learn about different volatility models and how to calculate volatility using them.Introduction to Volatility Targeting3m 54sLevel of Volatility2mEffect of Volatility Targeting2mVolatility of Volatility Targeted Portfolio2mLeverage for Volatility Targeted Portfolio2mPerformance of Volatility Targeted Portfolio2mSharpe Ratio for Volatility Targeted Portfolios2mDifferent Volatility Models2m 59sVolatility Estimation2mAverage True Range2mEqual Weighted Returns2mExponentially Weighted Returns2mVolatility Clustering2mGARCH Model2mVolatility Models10mCalculate EWMA Volatility5mInterpretation of ATR Plot2m- Application of Volatility TargetingIn this section, you will learn to apply the volatility targeting technique on the index reversal strategy. The performance metrics, leverage ratio, and the portion of capital used by this position sizing technique, are calculated in a Jupyter notebook.Application of Volatility Targeting3m 38sApplication of Volatility Targeting10mLeverage Based on Volatility Target5mReturns Based on the Leverage5mRisk Exposure in Volatility Targeting2mPortion of Capital in Volatility Targeting2m
- Live Trading on BlueshiftThis section will walk you through the steps involved in taking your trading strategy live. You will learn about backtesting and live trading platform, Blueshift. You will learn about code structure, various functions used to create a strategy and finally, paper or live trade on Blueshift.Uninterrupted Learning Journey with Quantra2mSection Overview2m 19sLive Trading Overview2m 41sVectorised vs Event Driven2mProcess in Live Trading2mReal-Time Data Source2mBlueshift Code Structure2m 57sImportant API Methods10mSchedule Strategy Logic2mFetch Historical Data2mPlace Orders2mBacktest and Live Trade on Blueshift4m 5sAdditional Reading10mBlueshift Data FAQs10m
- Live Trading TemplateThis section talks about the implementation of the position sizing technique on Blueshift from which you can paper trade and/or live trade.Section Overview10mPaper/Live Trading Volatility Targeting Method10mFAQs for Live Trading on Blueshift10m
Constant Proportion Portfolio Insurance
Constant Proportion Portfolio Insurance is another advanced position sizing technique that protects the downside. It guarantees a minimum return at the end of a period. This section will introduce you to this technique. You will also learn how to implement this in Python and then apply the technique on the index reversal strategy.Introduction to Constant Proportion Portfolio Insurance2m 34sProtection Level2mScale of Exposure in CPPI2mPortfolio Value Minus Floor2mRisky Asset Allocation2mAdvantages and Disadvantages of CPPI2m 8sDisadvantages of CPPI2mGap Risk2mReason for Gap Risk2mMultiplier2mExposure to Risky Assets2mRisk to Lose2mValue of the Multiplier2mAllocation to SPY ETF2mDecrease in Portfolio Value2mAllocation to Riskfree Asset2mApplication of CPPI5m 14sCPPI Implementation2mLeverage in CPPI2mImplementation of CPPI10mPaper/Live Trading CPPI Method10m- Time Invariant Portfolio ProtectionCPPI guarantees a minimum return at the end of a period, but fails to capture the portfolio highs. In this section, you will learn how to overcome this by adjusting the floor based on the peak value of the portfolio. You will do this by applying the technique on the index reversal strategy.Implementing Time Invariant Portfolio Protection10mLimitations of CPPI2mFloor in TIPP2mAdditional Reading10mPaper/Live Trading TIPP Method10m
Kelly Formula
In this section, you will learn about the Kelly formula and how to use it. Kelly formula is a technique used to calculate the trade size that ensures the maximum return without focusing on the risk of return. You will also learn how to implement this in Python. You will further learn the limitations of this technique.Kelly Formula4m 8sObjective of Kelly Formula2mDecisions to Open a Position2mTrade Size2mWin/Loss Ratio2mKelly Percentage2mImplementation of Kelly Criterion10mCalculate Winning Probability and Win/Loss Ratio5mCalculate Kelly Percentage5mLimitations of Kelly Formula1m 55sKelly Formula in Trading2mDisadvantages of Kelly Formula in Trading2mAdditional Reading10m- Optimal FThe major disadvantage of the Kelly formula is that it is applicable only on binary outcomes, and thus is not directly usable in trading. This is overcome by optimal f. In this section, you will learn about this technique and its implementation in Python. You will also apply this technique on the index reversal strategy.Optimal F1m 39sFeatures of Optimal F2mRange of Optimal F2mValue of Optimal F2mImplementation of Optimal F10mAdditional Reading10mPaper/Live Trading Optimal F Method10m
- Theory Is Grey, but Life Is GreenPosition sizing techniques can work on a trading strategy exceptionally well and yet falter in the real world. Sometimes, the position sizing techniques, such as Kelly fraction or optimal f, have their own limitations. Other times, the financial markets themselves pose unique challenges to these techniques. In this section, you will look at these challenges and learn how to overcome them.Inherent Risk in Kelly Criterion and Optimal F4m 1sProperties of Kelly Criterion Criterion and Optimal F2mProbability of Drawdown2mReduction in Probability of Drawdown2mOptimal and Real Bet Size2mRelation Between Probability and Drawdown2mFractional Kelly and Probability of Drawdown2mFractional Kelly and Profit Potential2mRelation Between Fractional Kelly and Expected Profit2mOptimal Kelly Fraction2mHidden Risks in Backtesting and Financial Markets4m 21sOut and In Sample Returns2mCompensation of Out of Sample Returns2mStationarity of Price Series2mImpact of Non-Stationarity2mSignificance of Fat Tails2mBlack Swan Events2mFocus of Position Sizing2mDealing with Unprofitable Trading Strategy1m 44sTurning Off Trading Strategy2mAdvantage of Multi Strategy Portfolio2mCapital Allocation Based on Performance2mCorrelation in Multi-strategy portfolio2mMartingale Trading Strategy3m 41sUse of Martingale Trading Strategy2mAdditional Reading10m
- Numerical MethodsHave you ever wondered what would have happened if the past was different? How a trading strategy would perform differently due to some unexpected events in the past. In this section, you will explore alternative trading realities and learn from them. This section will introduce bootstrapping and Monte Carlo methods, which helps you get deeper insights into a trading strategy by exploring multiple scenarios. You will also learn to do bootstrapping simulations on the index reversal strategy and gain more insights.Bootstrapping3m 3sNeed of Bootstrapping2mBootstrapping Process2mInference from Bootstrapping Data-I2mInference from Bootstrapping Data-II2mEstimate Parameters2mBootstrapping Results1m 48sBootstrap Simulation10mMaximal Drawdown Distributions2mBootstrapping Result Interpretation2mCapital Allocation Based on Bootstrapping Results2mMonte Carlo2m 33sHow Much Capital Allocated?2mMonte Carlo Method2mMonte Carlo Process2mAdvantages and Disadvantages of Monte Carlo2m
- Conservative Framework for Position SizingOnce you have gained the knowledge and have applied the position sizing techniques on a trading strategy, you will take the next big step, combining two position sizing techniques! Not only that, you will analyse the trading strategy’s performance as well.Testing the Trading Strategy2m 58sReason for Position Sizing2mMaximisation of Returns through Position Sizing2mRisk and Position Sizing2mLimitations of Backtesting2mLeverage Boundaries2mLong Historical Data2mConservative Estimate of Leverage2mRevisiting CPPI and Volatility Targeting3m 19sCPPI and Drawdown2mCPPI Based Allocation2mCPPI and Volatility Targeting2mImpact of Volatility on CPPI and Volatility Targeting2mResult of CPPI and Volatility Targeting2m 9sAnalysing CPPI and Volatility Targeting Performance2mImplication of Dynamic Position Sizing2mImpact of High Risk Budget and High Leverage2mPosition Sizing and Unprofitable Trading Strategy2mImplementing TIPP with Volatility Targeting10mPaper/Live Trading TIPP with Volatility Targeting10m
- Automate Trading Strategy Using IBridgePyAdditional Reading10mSample Strategies to Run on Interactive Brokers2m
- Run Codes Locally on Your MachineLearn to install the Python environment in your local machine.Python Installation Overview1m 59sFlow Diagram10mInstall Anaconda on Windows10mInstall Anaconda on Mac10mKnow your Current Environment2mTroubleshooting Anaconda Installation Problems10mCreating a Python Environment10mChanging Environments2mInstalling Ta-Lib2mQuantra Environment2mTroubleshooting Tips For Setting Environment10mHow to Run Files in Download Section?10mTroubleshooting For Running Files in Download Section10m
- Capstone ProjectIn this section, you will undertake a capstone project where you will apply different position sizing techniques to a trading strategy. The performance of the two sizing techniques is compared. This project helps you to practice and apply the concepts learnt in this course.Capstone Project: Getting Started10mProblem Statement10mFrequently Asked Questions10mCode Template and Data Files2mModel Solution: Position Sizing Capstone Project10mCapstone Solution Downloadable2m
- Course SummaryIn this section, you will go through the different concepts you learnt throughout the course. You will also be able to download all the strategy notebooks as a zip file. You can use these notebooks and modify their contents to create your own unique strategy.Course Summary3m 25sPython Data and Codes2m
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Faqs
- When will I have access to the course content, including videos and strategies?
You will gain access to the entire course content including videos and strategies, as soon as you complete the payment and successfully enroll in the course.
- Will I get a certificate at the completion of the course?
Yes, you will be awarded with a certification from QuantInsti after successfully completing the online learning units.
- Are there any webinars, live or classroom sessions available in the course?
No, there are no live or classroom sessions in the course. You can ask your queries on community and get responses from fellow learners and faculty members.
- Is there any support available after I purchase the course?
Yes, you can ask your queries related to the course on the community: https://quantra.quantinsti.com/community
- What are the system requirements to do this course?
Fast-speed internet connection and a browser application are required for this course. For best experience, use Chrome.
- What is the admission criteria?
There is no admission criterion. You are recommended to go through the prerequisites section and be aware of skill sets gained and required to learn most from the course.
- Is there a refund available?
We respect your time, and hence, we offer concise but effective short-term courses created under professional guidance. We try to offer the most value within the shortest time. There are a few courses on Quantra which are free of cost. Please check the price of the course before enrolling in it. Once a purchase is made, we offer complete course content. For paid courses, we follow a 'no refund' policy.
- Is the course downloadable?
Some of the course material is downloadable such as Python notebooks with strategy codes. We also guide you how to use these codes on your own system to practice further.
- Can the python strategies provided in the course be immediately used for trading?
We focus on teaching these quantitative and machine learning techniques and how learners can use them for developing their own strategies. You may or may not be able to directly use them in your own system. Please do note that we are not advising or offering any trading/investment services. The strategies are used for learning & understanding purposes and we don't take any responsibility for the performance or any profit or losses that using these techniques results in.
- I want to develop my own algorithmic trading strategy. Can I use a Quantra course notebook for the same?
Quantra environment is a zero-installation solution to get beginners to start off with coding in Python. While learning you won't have to download or install anything! However, if you wish to later implement the learning on your system, you can definitely do that. All the notebooks in the Quantra portal are available for download at the end of each course and they can be run in the local system just the same as they run in the portal. The user can modify/tweak/rework all such code files as per his need. We encourage you to implement different concepts learnt from different learning tracks into your trading strategy to make it more suited to the real-world scenario.
- If I plug in the Quantra code to my trading system, am I sure to make money?
No. We provide you guidance on how to create strategy using different techniques and indicators, but no strategy is plug and play. A lot of effort is required to backtest any strategy, after which we fine-tune the strategy parameters and see the performance on paper trading before we finally implement the live execution of trades.
- What does "lifetime access" mean?
Lifetime access means that once you enroll in the course, you will have unlimited access to all course materials, including videos, resources, readings, and other learning materials for as long as the course remains available online. There are no time limits or expiration dates on your access, allowing you to learn at your own pace and revisit the content whenever you need it, even after you've completed the course. It's important to note that "lifetime" refers to the lifetime of the course itself—if the platform or course is discontinued for any reason, we will inform you in advance. This will allow you enough time to download or access any course materials you need for future use.
- What is position sizing in trading?
Position sizing refers to the process of determining the appropriate quantity of shares or contracts to trade based on factors such as risk tolerance, account size, and the specific trading strategy being employed.
Position sizing is an essential aspect of risk management in trading. It helps traders control their exposure to risk and manage their capital effectively. By allocating the right position size for each trade, traders can strike a balance between risk and potential profitability.
In position sizing trading, the goal is to determine the optimal position size that aligns with the trader's risk tolerance and strategy. This involves considering various factors, including account size, risk per trade, and the distance between the entry price and stop-loss level.
One popular method for position sizing trading is the Fixed Fractional method. This approach involves risking a fixed percentage of the trading capital on each trade. For example, if a trader decides to risk 2% of their account on a trade and their account size is $50,000, they would risk $1,000 on that trade. The position size is determined by dividing the risk amount by the difference between the entry price and the stop-loss price.
Formula for position sizing in Fixed Fractional method:
Position Size = (Account Value * Risk Percentage) / (Entry Price - Stop Loss Price)
For instance, if a trader has an account value of $100,000 and decides to risk 2% on a trade with an entry price of $50 and a stop-loss price of $48, the position size would be:
Position Size = ($100,000 * 0.02) / ($50 - $48) = $2,000 / $2 = 1,000 shares/contracts
This means the trader should trade 1,000 shares or contracts to maintain a risk exposure of 2% of their account.
Another approach in position sizing trading is the Volatility-based method. This method adjusts the position size based on the volatility of the market or the specific trading instrument. Higher volatility may result in smaller position sizes to manage risk effectively.
It's important to note that position sizing trading should always be aligned with the trader's risk tolerance and the specific characteristics of their trading strategy. Different strategies may require different position sizing approaches to account for factors like volatility, account size, and target risk levels.
By implementing a proper position sizing strategy in trading, traders can effectively manage risk and protect their capital. It helps ensure that losses are controlled and contained while allowing for potential profits to accumulate over time. Regularly reviewing and adjusting position sizing strategies based on evolving risk profiles and market conditions are essential.
In conclusion, position sizing trading refers to the process of determining the appropriate quantity of shares or contracts to trade based on risk tolerance, account size, and trading strategy. Whether using the Fixed Fractional method or the Volatility-based method, implementing an effective position sizing strategy is vital for managing risk and maximising potential returns. It allows traders to strike a balance between risk and reward, contributing to long-term trading success
- How do you determine your position size?
There are various factors that can be used to determine the position size. For example, you can set up the size of trades depending on your risk appetite. You can use the past volatility of the underlying market as a measure of risk and set up the size of trades. Other position sizing methods, such as Constant Proportion Portfolio Insurance (CPPI) and Time Invariant Portfolio Protection (TIPP), can be used to size the trade. In these methods, you can enjoy the upside potential while hedging the exposure to downside risk. Various other position sizing techniques, such as kelly criterion, optimal f, etc., are discussed in the Position Sizing in Trading course.
- When should I increase my position size?
If you have a trading strategy that becomes consistently profitable, you can start to look at increasing the position size. Instead of abruptly increasing the size to a large value, you can incrementally increase the position size. For example, if you have been allocated 5% of your capital to a particular strategy. And the strategy becomes profitable; you can move to the next level and start allocating 10% to that strategy.
- How large should stock positions be?
The size of stocks positions should depend on the amount of risk that you want to take on a position that is maximum risk per trade. For example, if you have $10,000 in your account and you want to risk 2% of the account, then you could risk up to $200 per trade. Another factor that can be taken into account is the volatility of stocks. If you have less volatile stocks in your portfolio, then a position size up to 5% can be suitable. For volatile stocks, the position size should be smaller.