TradeStation Portfolio Maestro

Fixed Fractional with Standard Deviation Risk - Money Market Strategy

The Fixed Fractional with Standard Deviation Risk strategy risks a percent of the portfolio equity on each trade based on the distance to the stop from the entry point of the trade. The measure used to determine the distance from entry to the stop is a multiple of the Standard Deviation of price over some (user defined) lookback period.

This strategy is similar to the strategy above except Standard Deviation is used instead of ATR. The parameters that are used to determine the number of contracts or shares to trade include the portfolio equity (set at the start of the test), the amount of portfolio equity to be risked, Standard Deviation Multiple, Standard Deviation Lookback and the Maximum Number of Contracts that can be purchased.

• The percent risk is the percent of the total portfolio equity expressed in the selected currency that is available to invest in a trade.
• Standard Deviation Multiple is the multiple of the Standard Deviation that will be used to determine the "distance to the stop" as a means of determining initial position risk.
• Standard Deviation Lookback represents the number of bars over which the Standard Deviation is calculated.
• The Maximum Number of Contracts is the maximum number of contracts or shares that can be bought (or sold) on any trade.

Example

If we are trading the S&P e-mini contract and each point is worth $50 our risk per contract is $50 per point. Let’s say we got a signal to enter a trade and the Standard Deviation of the last 5 days is 12 points. Now let us assume that in our parameter settings we selected Standard Deviation Multiple = 2, so our risk per contract is 12 points*2*$50 = $1200. If the portfolio equity is $100,000 and we have selected to risk 5 percent then we can purchase 4 contracts. Assuming 4 is smaller than Maximum Number of Contracts, 4 contracts will be used in this trade as this position size.