How to Size Trades Based on Drawdown

  • Define the amount you want to budget for drawing down. We call this Draw Down Allowance – DDA (e.g. $10k)
  • Divide your DDA by the Max Draw Down (MDD) amount from the study’s smallest possible size (e.g. $1,200 per unit)
  • $10,000 DDA / $1,200 MDD = 8.333
  • This means your size should be 8 units of whatever the strategy rules give
  • Please account for any extra capital that would be required to keep trading if you have a draw down
  • Example: If you need $30,000 of margin/capital for each trade and your DDA is $10,000, then you need $40,000 total to run the strategy.

Note: These are hypothetical numbers. Not a recommendation.