The Thursday Question: How We Actually Size A Position
A member asked fixed dollars or fixed risk. The honest answer is the one the test used, not the one that sounds cleaner.
This week’s Thursday Question, from the June member Q&A:
“Should I size positions by a fixed dollar amount, or by a fixed percentage risk per trade?”
We size by a fixed dollar amount. Equal dollars into every name the system fires. Same slice of capital, every time.
That surprises people who expect risk-parity math, tuning each position off its stop so every trade risks the identical amount. It’s a reasonable idea. It just isn’t what these systems were tested on.
And here’s the honest part. With fixed dollars, a wide mean reversion stop risks more dollars than a tight momentum stop. Same position size, different stops, so the per-trade risk does vary. I’m not going to pretend it doesn’t.
But that variance isn’t a leak. It’s already inside the number. The Swing Combo’s 17.30% max drawdown over 25 years, while the S&P drew down 57%, came out of 16,687 trades sized exactly this way. The test saw every wide stop, every tight one, every uneven bit of risk between them. You don’t need to hand-tune per-trade risk on top of a system that already measured it.
So the answer isn’t which method is theoretically cleaner. It’s which one the test used. Ours is fixed dollars. Match the tested configuration and the drawdown number describes your account. Change it and you’re running something the 25 years never saw. The tested results are all in The 25-Year Backtest.
Free 25-Year Backtest PDF: https://www.statsedgetrading.com/the-25-year-backtest
Stats Edge Pro at $149.99/month with a 30-day money-back guarantee, or $1,499.99/year. Founding tier at $3,000/year for traders who want a 1:1 onboarding call.
The Swing Combo has had a 17.30% max drawdown over 25 years while the S&P drew down 57%. Paid members get every signal, every entry, every stop, plus real-time Discord alerts and the biweekly Q&A.
Michael Nauss, CMT, CAIA, CDMS