Adrian Reid walks through position sizing for multiple trading systems. With a $50,000 account split 50-50 between two systems, allocating $25,000 to system one and using 5% position sizing lets you run up to 20 concurrent trades. Recalculate your allocation whenever a system gains or loses money to decide if you can add new positions.
Let me make up an example. This will illustrate it. Let's say you had $50,000 in your.
Account and you're allocating 50% of it to system one, okay?
But you don't have system two yet. So that cash is just going to be sitting there doing nothing.
So, you know, on day one, you take your $25,000, which is 50% of $50,000, and you put that value into your backtest to run your backtest to generate the signals.
And you also know that in this, whatever system it is, how, how many positions in total you can have before you run out of capital?
The backtest can sort of set up.
Will tell you that, like if it's.
A 5% of equity position sizing model, then you can have 20 trades right on day one.
And when you've got 20 trades, you can't take another one.
Now, if that system makes money.
So let's say your $25,000 goes up to 30.
Because one of your trades went well. When you're doing your position sizing for.
The next trade.
The way you should.
Think about it is, okay, I had $50,000 in my account, and this system.
Was 50% of my total capital.
So now it's not $50,000, it's $55,000, because that system went from 25,000 up to 30,000.
So take your $50,000, multiply it by. Sorry. Take your $55,000, multiply it by the 50% capital allocation you're giving to that.
System.
And that tells you now you're allowed to have up to.
27 and a half thousand dollars of exposure in this system.
And if you're over that level at the moment, you can't take a new trade. If you're under that level, you can take a new trade.
It.
