Measured Fixed Fractional Position Sizing Overview

Introduction

In the realm of trading, the Measured Fixed Fractional model emerges as a safeguard for those who have encountered the all-too-common scenario of relinquishing recent gains during periods of market reversal. This model is especially pertinent for traders whose current risk management practices may not align with their strategic approach, or who may operate without a structured financial plan. The Measured Fixed Fractional strategy offers a prudent solution by modulating trade sizes.

Unlike instantaneous adjustments after each trade or at uniform time intervals, this model calibrates trade sizes in response to cumulative capital increments. In essence, it modulates the growth of the trader's equity in measured fractions, marking a departure from the rigidity of other models.

This model offers a less volatile alternative to the Fixed Lot model, where leverage can often fluctuate more dramatically. While it ensures a more steady and controlled utilization of leverage, it can sometimes limit the full exploitation of a winning streak's compounding benefits as perceived by more aggressive traders. However, the primary advantage remains clear: it adds a layer of protection to profits by preventing overexposure during periods of expansion.

Functionality

• Growth-Based Position Sizing: Unlike models that adjust trade sizes after every transaction or at set intervals, the Measured Fixed Fractional model adjusts trade sizes after capital reaches predetermined thresholds. This method ensures that trading intensifies when profits are secured and scales back during drawdowns to protect capital.
• Protection Against Profit Loss: The key objective of this model is to prevent the scenario where profits are handed back to the market after a winning streak. By recalibrating trade sizes only after a specific growth milestone is achieved, traders can enjoy the benefits of compounding during successful periods while mitigating the risks associated with aggressive trading.
• Calculated Risks: Risk levels are assessed and adjusted in alignment with capital growth, preventing excessive leverage. For more conservative traders, this model may limit the adverse effects of a sudden market turn that could otherwise erode significant portions of accumulated profits.

Example Implementation

In the Measured Fixed Fractional model, a conservative approach is taken by risking only 1% of the account balance. This model employs a straightforward calculation method where the capital is rounded down to the nearest lower standard fraction, which then determines the position size. For example, for every $1,000 in profit gained, the trade size is recalculated based on this new balance. Traders have the flexibility to define these thresholds in a manner that aligns with their individual risk tolerance and trading objectives. Whether it's each $1,000 increment or another specified figure, this model allows for tailored risk management and growth potential.

This table demonstrates how the risk per trade remains proportional to the capital in the account, ensuring that as capital increases, so too does the potential reward, while managing the overall risk exposure.

Conclusion

The Measured Fixed Fractional model is designed for traders who desire a structured and disciplined approach to growth and risk management. It offers a methodical way to scale trading efforts and protect gains, suitable for both aggressive traders and those with a more conservative risk appetite.