User Name: Password:      Register - Lost password?
Search In...

         A Live Learning/Help Forum
             VIDEOS -
                 Mov Avgs (6)
         Currency Futures
         Market Terminology
         Posting a Forum Chart
         Trade Execution
         Trade Management
         Trading Fundamentals
             Economic Indicators
             Flows/Central Banks
             Risk Aversion
         Trading Psychology
         Trading Technicals
         Trading Techniques

         Module 1: The Basics of Forex Trading
         Module 2: The Logistics of Forex Trading
         Module 3: The Logistics of Forex Trading Part 2
         Module 4: What Moves the Forex Market
         Module 5: Trading the US Dollar
         Module 6: Trading the Euro
         Module 7: Trading the Japanese Yen

  VIDEOS: Trading Basics
         Module 1: Technical Analysis Basics
         Module 2: Chart Patterns
         Module 3: Technical Indicators
         Module 4: Candlestick Chart Formations
         Module 5: The Psychology of Trading
         Module 6: Money Management
         Module 7: Position Sizing
         Module 8: Intro to Fundamental Analysis
         Module 9: Economic Releases that Move the Markets
         Module 9a: Pulling It All Together

  Help/Learning Forum Topics

Found In....
Category Name: VIDEOS: Trading Basics
» Sub-Category Name: Module 7: Position Sizing
Lesson 5: PCT Volatility Position Sizing Method
Lesson 5: PCT Volatility Position Sizing Method

In our last lesson we furthered our discussion on the importance of position sizing in successful trading and talked about the % Risk Model which many traders use to determine their position sizes. In today’s lesson we are going to talk about another method which Dr. Van K Tharp talks about in his book Trade Your Way to Financial Freedom, the % Volatility Model for position sizing.

As we have discussed in our previous lesson on the Average True Range, Volatility is basically how much the price of a financial instrument fluctuates over a given time period. Just as the Average True Range, the indicator that was designed to represent average volatility in an instrument over a specified time, can be referenced when determining where to place your stop, it can also be used to determine how large or small a position you should trade in a given financial instrument.

To help understand how this works lets take another look at the example we used in our last lesson on the % Risk Model for position sizing, but this time determine our position size using the % Volatility Model for position sizing.

The first step in determining what your position size will be using the % Volatility Model is specifying what % of your total trading equity you will allow the volatility as represented by the ATR to represent. For this example we will say that we will allow Daily Volatility as represented by the ATR to account for a maximum of a 2% loss of trading capital.

If you remember from the example used in our last lesson we had $100,000 in trading capital and we are looking to sell crude oil which in that example was trading at $90 a barrel. After pulling up a chart of crude oil and adding the ATR you see that the current ATR for Crude is $2.55. As you may also remember from our last lesson a 1 point or 1 cent move in Crude equals $10 per contract. So with this in mind that volatility in dollars per contract for crude equals $10X255 which is $2550.

So as 2% of our trading capital that we are willing to risk on a volatility basis equals $2000 under this model we cannot put a position on in this instance and would have to pass up the trade.

As Dr. Van Tharp states in his book, the advantage of this model is that it standardizes the performance of a portfolio by volatility or in other words does not allow financial instruments with a higher volatility to have a greater affect on performance than financial instruments with a lower volatility and vice versa.

The position sizing methodology that one ultimately chooses for his strategy should be decided by testing the strategy, the methodology for which we will cover in later lessons, and seeing which method works best with that particular strategy.

That’s our lesson for today and while there are many other methods of position sizing out there which I encourage you to explore, this finishes up my series on the subject. If you are seeking more information on position sizing I have included a link to additional resources below if you are watching this video on or in the description section if you are watching the video on youtube or one of the other video sites.



Actionable trading levels delivered LIVE to YOUR charts

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Mon 27 May 2019
AAGB/US- Holiday
Tue 28 May 2019
A 14:00 US- Consumer Confidence
C 13:00 US- Case-Shiller
Wed 29 May 2019
A 08:55 DE- Employment
AA 18:00 US- BOC Decision
A 18:30 US- EIA Crude
Thu 30 Mar 2019
AAEZ/CH- Holiday
A 12:30 US- Weekly Jobless
Fri 31 Mar 2019
AA 10:00 EZ- Flash HICP
A 12:30 US- Personal Income, Spending, Deflator
AA 14:00 US- Final Univ of Michigan

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
The Amazing Trader
Forex Opportunities
Forex Affiliates
Forex CopyTrading
GVI Forex