Periodical Fixed Fractional Position Sizing Overview

Introduction to Periodical Fixed Fractional

The Periodical Fixed Fractional method is an adaptation of the Fixed Fractional position sizing that introduces a scheduled reassessment of the trade risk percentage. Unlike the standard approach, which recalculates the position size with every trade, this variant does so at predetermined intervals based on the performance and equity changes over that period.

How It Works

• Risk Recalculation Schedule: The trader sets a specific period—daily, weekly, or monthly—after which the account equity is reviewed and the risk percentage is recalculated.
• Adjustment Trigger: The recalculation is triggered only if there has been a change in account equity within the set period, which can be an increase due to profits or a decrease due to losses.

Benefits of Periodical Adjustment

• Mitigating the Impact of Volatility: By adjusting position sizes at regular intervals rather than after every trade, this method diminishes the influence of short-term volatility and the alternation of winning and losing trades on the system's performance.
• Stabilizing Returns: Scheduled adjustments can result in a tighter range of potential returns, making the outcome more predictable and closely aligned with the average expected return.
• Less Frequent Rebalancing: Traders who prefer not to adjust their risk continually will appreciate the reduced operational workload and the smoother equity curve that can result from less frequent rebalancing.

Considerations

• Market Sensitivity: The choice of the period for adjustment should be sensitive to market conditions and the trader's own trading frequency. For instance, a day trader might prefer daily adjustments, while a swing trader might opt for weekly or monthly.
• System Performance Impact: The period selected for rebalancing can have a significant impact on the trading system's performance, especially in terms of drawdowns and recovery periods.

Conclusion

The Periodical Fixed Fractional position sizing is a strategic enhancement to the classic model, designed to provide traders with a more consistent and less reactive approach to managing trade risk. By aligning risk adjustments with a regular schedule, traders can smooth out the ride of their equity curve and potentially enhance the stability of their returns. This method requires discipline and an understanding of one's trading system and market conditions to select the most appropriate adjustment period for optimal trading outcomes.