How Much is Too Much? | Quant Wisdom Wednesday

StatsEdgeTrading

Position Sizing: Finding the Right Balance

Position sizing is crucial. Too many positions and your portfolio might mimic market performance. Too few, and the risk becomes too high. The right balance depends on your risk tolerance.

Key Examples from StatsEdge Pro

Here are three scenarios from strategies I run in StatsEdge Pro, highlighting the impact of position sizing on returns and drawdowns.

• 5 Positions/Strategy:

  • Avg Yearly Return: ~30%

  • Max Drawdown: ~30%

• 10 Positions/Strategy:

  • Avg Yearly Return: ~25%

  • Max Drawdown: ~20%

• 50 Positions/Strategy:

  • Avg Yearly Return: ~15%

  • Max Drawdown: ~18%

Finding Your Sweet Spot

There's no perfect answer for everyone. You need to balance risk and return based on your goals. For example, a 30% drawdown on a $1M portfolio cuts it to $700K. A 20% drawdown leaves you with $800K, which might be easier to manage.

Takeaways

• Understand your risk tolerance.

• Decide your return expectations.

• Balance diversification to avoid diminishing returns.

"Quant Wisdom isn’t just about what to trade, but how much to trade."

For more in-depth strategies, check out StatsEdge Pro and join the discussion in our Discord community.