16/11 – Sizing trades when several setups occur at the same time



For any trader monitoring multiple markets, it becomes inevitable that he or she will get more than one setup at the same point in time, or that additional setups become valid whilst some are already open.

What’s the best thing to do in this scenario from a position sizing and risk management perspective?  I don’t know the correct answers but I can provide some thoughts on the matter.

Why multiple setups?  Sometimes there are obvious reasons for multiple setups – such as USD crosses on the 1H setting up at the same time – other times the reasons are a little more subtle e.g. risk-on/risk-off trades such as USDJPY and the DAX setting up at the same time – other times there may be no apparent correlation at all.  The setups may even come from different strategies such as when a trader employs both a mean-reversion (that’s a fancy term for saying reversal strategy) and a trend-following strategy.

The ‘easy’ answer

In the long run, taking all setups at full position size, should work in the trader’s favor, because sometimes all the positions will win, and sometimes all the positions will lose, but in the long run the expectancy should be positive.

[This assumes that firstly, the trader exercises sound risk management and position sizing to begin with, in order to avoid wild swings in the account.  A trader risking 0.25% or 0.5% may consider having 6-8 full risk positions open, a trader who risks 2% or even more per trade, should most likely avoid this topic altogether and just do one trade at a time!  The second point to consider is whether the existence of multiple setups at the same time increases or decreases the expectancy of the situation, or whether it makes no difference at all.  In other words do multiple related setups increase or decrease the probability of the setups producing profitable results.]

My approach

I have tried the ‘easy’ approach, and found that it didn’t work well for me.  I have noticed that in the short run, in each single instance of taking multiple positions, my trading competency seems to be temporarily impaired – thus doing that reduces my expectancy.

It creates anxiety.  It prevents me from trading optimally.  It may prevent me from spotting additional setups.  It may prevent me from reading information that the market is giving to me.  Basically it means I can no longer do my job of being a trader properly.  [This is clearly more relevant to discretionary traders – in other words traders who have not automated their execution and trade management.]

Ideally this shouldn’t be happening – but it does – and so I need to deal with it.

Thus, I should limit the amount of R I risk in the market at any point in time.  Allocate out my position sizing across the positions.  Do not enter into additional positions until the risk on the existing positions has reduced drastically i.e. price has moved into favor considerably and the stop loss has been tightened.

Practical implications:

Limit open exposure to 2R risk.

Example: If R is £100, then maximum risk becomes £200.  Thus, the amount of £200 is spread across all positions about to be opened simultaneously.

Something else to consider:  What about maximum drawdown from an unrealised profit/loss position?  Consider two open positions which currently show a profit of £250.  In the worst case scenario the profit on these will reduce to £0.  If I now open further risk of £200, then in the worst case scenario the £250 unrealised profit/loss could end up as a loss of £200 for the session – a negative swing of £450.

Would this also temporarily impact on my competency?  Maybe less, but consider stopping trading for the session if such a swing has occurred.


Would be great thoughts from others if they have different perspectives on how they handle this incidence!


This entry was posted in Financial Markets 101, Risk & Money Management. Bookmark the permalink.

2 Responses to 16/11 – Sizing trades when several setups occur at the same time

  1. “It creates anxiety. It prevents me from trading optimally. It may prevent me from spotting additional setups. It may prevent me from reading information that the market is giving to me. Basically it means I can no longer do my job of being a trader properly.”

    You need a certain psychological/emotional makeup to be a discretionary trader.
    And to be a discretionary DAY trader requires an even more specific psychological makeup.
    I think only a few people in every thousand can do it easily due to the anxiety/pressure you mention.
    I certainly cant day trade that way due to exactly the reasons you give.

    If you continue to struggle with discretionary day trading then i would suggest either longer term trading or to automate your day trading taking perhaps one or two trades a day at most (and some days zero trades when there are no good setups).

    Both these approaches suffer from less day to day psychological anxiety and pressure, although they can still be hard to execute properly during a long losing streak. The temptation to ‘jump’ the system (ie. skip trades) is always present in trading regardless of style.

    Regarding correlation the obvious answer is recognise when additional trades are highly correlated and reduce size on these.
    eg First trade taken at full risk, second trade taken at half risk. Third and subsequent setups taken at zero risk.

    Liked by 1 person

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