Regardless, it has nothing to do with your smarts. You’re very intelligent; it shows in your writing. I think what I hear you looking for is a mathematical way to determine your most *efficient* position size- as you know, too small and your profits never get traction, too large and your risk of vaporization from a few unfortunate trades is very high.

I’d instead refer you to some other reading (you may have already done): First, explore the Kelly Formula. Not from any of the stock-related sites that purport to tell you their version of what the Kelly Formula is and how it applies to trading, but from the above biographical link to William Poundstone’s site, and with a pencil and some blank paper in hand. After a bit of scribbling, head scratching and cursing, you’ll end up with a practical equation that you’ve dissected and are comfortable applying to your trading. And you’ll notice some errors and misunderstanding in many of the stock sites’ versions.

Second, read Trader Mike’s post on Expectancy (can’t link to it right now, his site’s down and he has it set so Google doesn’t cache it… another post on it is here at Ezine Articles). Have the same pencil and some more scratch paper handy. Deconstruct it, rearrange it, scribble and curse until it morphs into the version you’re comfortable with.

Next, you can build a down-and-dirty spreadsheet to fool around with these calculations and variations on them. Not necessary, but I know I did and I bet you can’t resist, either

You’ll quickly see the similarity between those two (and the “risk of ruin” info as well), and personally I think they’re the best leads on a mathematical way to quantify your expected gains, losses and drawdowns.

Now the bad news. As an experienced trader, you’ll immediately notice that every such formula has a land mine in it: some variation on “how often you expect to be right and how much you expect to win when you are.” Holy Mother of Bob, how closely can you estimate those? I’m here to tell you, the moment you put your guesstimates to those variables, the entire calculation changes to “here’s your answer, plus or minus 50%.”

I’m more simplistic about it- I try to size large enough where comissions aren’t a significant factor (easy now that it’s not $30 each way), and I size small enough that a day with 4 losses in a row doesn’t make me turn into Job, shaving my head and beating my chest and such. I find that when I set those parameters, I come up with a pretty narrow range of where I’m comfortable. Second, if my account drops a certain amount (right now that amount is $3000), I have to *stop trading* until I add that money back the old-fashioned way… a dollar at a time by working overtime, etc. Very painful, and those dollars get so much more precious when you gotta put ‘em back in blood, sweat and tears. It keeps me firmly connected to the account balance that can all to easily begin to feel like Monopoly Money when I’m trading. That’s just what I’ve come up with to keep myself in line. YMMV.

I’m certain that in particular situations these kinds of equations are very helpful. Unfortunately, those are like the question of “C Corp, S Corp, or LLC?” — Fun to think about, but not relevant until you’re making so much money you giggle at the dilemma. The example on “traderscalm” about the guy who was making 7 digits and over 100% per annum return and “wanted to reduce his drawdowns so he could sleep at night,” for instance.

Did that help? Sorry if not. I’ve been chauffeuring little girls from appointment to event to whatever… to the tune of about 300 miles driven LOCALLY yesterday and today, and am at risk of severe rambling…

Have you ever calculated your risk of ruin in conjuction with a per share risk tolerance or position size? I’m trying to figure it out and I can’t think statistically how to do it. I just visited the traderscalm website and I think that it can lead to less fear and more confidence, but I’m not smart enough to figure it out.

LP

Tis the season to eat the rich. Guess that’s why I am anxious to short GS and RL. Blue blood in the water. Or am I dreaming.
Best to you Will.

Fan- thank you for the heads-up; that action on GS looks like a fantastic shorting opportunity. Bearish engulfing candle at the top of an uptrend, which also fails back thru the top from a couple of weeks ago for what looks like an “Eve & Adam” top. My screens don’t catch over=$100 stocks, and I only manually follow a couple (SHLD and GOOG), but this $200 puppy is absolutely beautiful! I’m already plotting- top was 206.70, bottom of that bar is 200.00… (hmmm, big round price level, that makes THREE levels of support/resistance). If I can get to it before I leave for work (in 15 minutes, and still gotta shower), I’m gonna put in a Stop Limit order to short 3 or 4 shares on a break! Thanks again!