Position Sizing.

How you define Equity at play.

We all know that position sizing (how much to bet) is done on your current equity.

A small nuance within this spectrum is how you define equity.

It can either be current market price of all your holdings + cash in hand. (which would imply that you are counting gyrating M2M profits as part of your equity)

Second way can be to count equity as (Booked Profits + starting capital)

As you can see, the second method is more conservative.

Lets take an example with MWM (Mysticwealth Momentum).

We are mandated to bet 5% of our current portfolio on any new bet. If we do it via method 01, this comes to Rs 192964.

Similarly, if we do it via method two, this would come to Rs 181084

Now, in our example, the difference is NOT that BIG and the reason is that our M2M gyrating profit in the book is only Rs 2,37,618. while the booked profits is in excess of 26 lakhs.

**(starting capital 10 lakhs)

Imagine a situation where booked profit is not high and M2M profit is. The difference between two position sizing techniques will become BIG and important.

Traders use regime filters to decide which position sizing they would deploy based on market condition and their own risk apetite.

Remember, Account size and Risk taking ability are Inversly co-related.

If you want to dig deep into this fascinating topic, take out some time this weekend and watch our detailed webinar below.

Cheers and Happy New Year!!!