position sizing depends (notably) of stop loss
I presume you mean position size x stoploss as a % of capital. I think one of the reasons this gets overlooked here is that algos are almost always developed on demo accounts where the actual cost of running any bot is ignored; just add more virtual funds.
I have only recently started trading live and suddenly the costing of it all comes into high focus. My initial thinking was to base this on margin cost, ie what much it costs me to get into the game. But with a very high leverage available I can see that this is not the way to go. Has to be based on notional value and the cost of each max loss.
Algos I’m working on at the moment all have an SL close to 1%. For that size loss to stay below 10% of capital, then you have to allocate funds to each bot of at least 10% of notional value. Unfortunately IG varies the min position entry point from one index to the next, so not immediately obvious where best to put one’s limited resources.
In terms of indices, the CAC40 €1 and DJI €.2 offer the lowest entry points at the moment. On the above calculation they would require ~ €500 in capital to run each min position bot. €1 on the DAX costs more than double.
(please excuse me if this is all bleedin’ obvious to more seasoned pros, I’m only just getting to grips with the nitty gritty here)
but gentle, subtle money management.
I think you have to take the historical performance into account. I would feel more comfortable with aggressive MM if a bot had consistently produced +90% wins. For 50-70% I would certainly tone it down. We are, as always, hostage to probability.
