I have a mechanical system I trade that has some money management built in. I am looking for some ideas on possible next steps to improve this where possible.
My Money Management
I currently use a fixed fractional method that has 5 equal size positions so a 100k account would have 5 * 20k positions when fully committed. I have a trailing stop that is also used as my Initial Stop at my Entry that is volatility based, and on average would be around 15%. This might sound extremely wide for some of you but I have found tightening it produces adverse system results.
Based on these money management parameters I am risking 3% per trade and my aim is to reduce my exposure to 2% per trade and maintain system performance if possible. The obvious options to me are a) tighten my trailing stops (which I have not been able to do effectively) or b) increase number of positions in my portfolio (which I have found lowers the systems profitability somewhat).
I have compared results from 2 to 15 and found;
Win/Loss ratio does not change much until 5 or less positions where it begins to increase.
System profit is cut in half when increasing positions from 5 to 10.
Days for Winning Trades and Days for Losing Trades does not vary with number of positions
Profit factor increases considerably with less positions
Drawdown increases with less positions but is more dramatic for simulations of < than 5.
1) What is the relationship between position size and profitability of my system? What should I look at next?
2) Is it always bad to risk more than 2% per trade in all cases? Are there exceptions where this would be feasible, if so when? Should I be concerned about 3% in my system or am I over-reacting?
3) Does anyone have any suggestions on what I can look at to reduce my risk beyond what I have described above? i.e. Different technique etc.
4) The above focuses on risk per trade. Am I correct in assuming that changing the number of positions does not alter the overall portfolio risk should the market tank. For e.g. 5 * 3% = 15% portfolio risk vs. 10 * 1.5% = 15%.
5) What is the impact of risk per trade on a margined portfolio? For e.g. My account had a 50% LVR so my 100k account now has 200k available to trade. I trade 5, 40k positions with a 15% Stop. Is my risk per trade still 3% or has is doubled to 6% because of leverage? Why?
6) Any other recommendations. Any suggested reading?
Thanks in advance