Size vs Value....continued

OK, so I am a sucker for running numbers when I have a bit of spare time.

I ran the same study while substituting a compounding factor by increasing the trade sizes as the account grew but only using 80% of the capital at any given time, the drawdown buffer. I capped the trades at 50 contracts per and ran the comparison until both methods were trading all trades at 50 contracts. 1 year. While the numbers may be high the relative values are what is important. I did not factor in any efficiency differences in trade executions, losses or missed trades in this one, bad enough with the regularly compounding.

At the end of one year trading 217 trades per quarter based on the last three months stats trading fixed contract trades based on 80% of the account balance divided by the average contract price of $2.50 (it's actually $2.68 which is also why I used 80% capital application) the final account balance is $1,691,801.

Compared to using trade size based on equal trade value for the same circumstances and attaining a balance of $1,905,013.

The final balance is higher by 12.6%. I thought it might be a larger difference... even so that is $213,212.

Applying a HUGE fudge factor and figuring on only making half the profits I would expect that the difference may be relatively similar. I tried capping the trades at 25 instead of 50 and got a 5% difference, $58,182 in cash.

Running a 10 contract cap puts the difference at 2.5% or $13,752. This pulls the forecasted account after one year down to the $620K - $650K mark.

All in all, as large as some of these numbers end up looking the goal is still $500 per day within the room placing the trades that we are placing. That is a $120,000 year based on 240 trading days... that's one year less 4 weeks for holidays. I expect to exceed that average as it is based on a $25,000 capital account and I am nearing that average with far less. I think that the idea is to cap trades at 10 with some exceptions so after running the comparative study based on that (above) I pretty much figure that his estimation is likely low.

Hmmm.... one more test. Starting with $25,000 and comparing the two methods while capping trades at 10 contracts puts the equal value behind the equal size by about 2% after only one quarter and 1.5% after the one year mark. So much for John's idea that equal weighting is an advantage if he suggests capping trades near the 10 contract mark.

Well, having said all that between these two posts I figure that I am still better off trading the equal sized trades over the equal value trades. I also figure that at a certain point, say at the one year mark, I will be better off trading stocks over options due to not having a cap and being able to make trades based on values when it makes more sense... a $25 stock will not move the same as a $250 stock afterall.

Meanwhile, I'll keep plugging away at the trading plan as it is and I will stick with same sizing at this point in order to maximize the trading speed of execution.

Jeff.