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2007issue C081

Predefine the loss before fixed contract sizing

Individual trading preferences can diverge sharply, and the archive rejects a single universally correct style. Because who is buying or selling cannot be known, the text places money-management, predefined-risk, and a bounded fixed-contract-sizing decision before the order exists.

  • Trading preferences diverge sharply, so the archive rejects a single universally correct style and requires size and loss choices before the order exists.
  • Who is buying or selling, how many are active, and how many are waiting stay unknown, which makes the search for one complete trading solution pointless.
  • Money-management is the controllable part of the process: committed capital, acceptable loss, and a profit-taking point, applied through predefined-risk and fixed-contract-sizing.
  • A repeatable process needs predefined risk, loss-cutting, and systematic profit-taking before a trader is told to accept responsibility for gains and losses.
Entries in this reading1 entry
Current trackFixed contract sizing29 readings

No universally correct style

Individual trading preferences can diverge sharply from another trader's preferences, so the archive text rejects a single universally correct trading style. Size and loss choices are described as differing across traders as well. Those choices are required before a trade is placed rather than improvised afterward.

Unknown buyers and sellers

A trader is told to accept responsibility for actions because markets remain unpredictable and several participant-level variables stay unknown. The unknown variables named in the text include who is buying or selling, how many are buying or selling, and how many are waiting to buy or sell. Because random factors remain, the text treats the search for one complete trading solution as pointless.

Money-management before the order

Money-management is identified as the part of trading a person can control, including how much capital to commit, how much of that capital may be lost, and where profits may be taken. Fixed-contract-sizing holds contract or share count steady and uses account equity, volatility, stop distance, and exposure to keep a loss decision bounded before entry and while the position remains open. Predefined-risk is that loss amount and exposure limit, chosen before the order is sent rather than after price has already moved. An accompanying discussion of fixed-fractional sizing is presented as a critique of how much capital should be placed in a trade.

Controls that make responsibility possible

The text lists three required controls for a repeatable process: predefine risk, cut losses, and take profits by a systematic rule. Trade-management governs the open position after entry and is presented as something to combine with money-management rather than leave as an afterthought. Facing uncertainty, the stated objective is capital-preservation by returning to predefined risk, loss-cutting, and systematic profit-taking. Only after those three controls are in place does the text say a trader can accept responsibility for both gains and losses.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
13 of 21 in the Fixed contract sizing track
201336-38 pp.Next on Fixed contract sizingWeekday, session, and market expectancy for contract sizeWrite a countable daily and weekly net-profit target before any room or contract-count decision.
All readings on this track · 21 readings
  1. 1987Volatility-layered mechanical system with fixed contracts
  2. 1994Starting capital from worst-case portfolio walk-forwards
  3. 1994Bound small-account risk before adding leverage
  4. 1996Variable position size after entry
  5. 1996Equity path filters for contract size and drawdown
  6. 1997Stop distance, equity caps, and trading halts
  7. 1999Size-matched buy-and-hold evaluation for stock systems
  8. 2002Size from stop distance to keep dollar risk even
  9. 2003Share size from daily profit equilibrium
  10. 2004Half-size energy futures as a pre-trade leverage filter
  11. 2007Equalizing contract risk in trend following
  12. 2007Expected-equity sizing and geometric drag
  13. 2007Predefine the loss before fixed contract sizing
  14. 2013Weekday, session, and market expectancy for contract size
  15. 2014Bounded leverage before you size a trade
  16. 2015Equal-dollar futures size and open-interest liquidity
  17. 2015Atomize trading decisions: discipline over complexity
  18. 2017Tiny bets, ruin risk, and mechanical scale
  19. 2018Near-strike weekly puts and unfunded assignment risk
  20. 2019Paper trading is unfinished without fill and size rules
  21. 2019Constructing futures leverage from margin and fixed size
By fieldSizing and leverage42 readingsBy year200773 readings
All 29 readings tagged Fixed contract sizing
Also on Fixed contract sizing5 readings
1987Volatility-layered mechanical system with fixed contracts1989Scale-in-on-loss on a tempered-martingale-series with a fixed unit-factor1990Reverse-martingale pyramiding after clustered wins1993Test Martingale against fixed size before you pyramid1994Bound small-account risk before adding leverage