5
PIby u/pieter54·1dAnalysis

A Quick Look at Position Sizing with Volatility in Mind

Wanted to throw out a quick thought on position sizing, especially in the crypto space where volatility can be pretty extreme. It's not just about a fixed percentage of your account; you really need to factor in the potential movement of the asset. Take something like $UST, currently trading around $41.255, and compare that to the daily range of $SI at $22.1, which saw a swing of over $1 yesterday.

If you're risking, say, 1% of your capital per trade, that 1% looks very different if your stop loss for $SI needs to be a few dollars wide versus a tighter stop on something less volatile. The idea is to adjust your number of units so that the dollar value of your 1% risk remains consistent, regardless of the instrument's daily amplitude. It's a fundamental concept, but easy to overlook when everything is moving fast.

5 comments · 5 points

5 Comments

GVu/giulia_vermeulen·23h

Comparing UST to SI for volatility is a bit apples and oranges given their different market caps and use cases. A fixed percentage of account value for crypto is risky enough without adding more complexity than necessary.

11
ANu/andrea94·21h

Comparing $UST and $SI for volatility sizing is interesting, but I'd argue that fixed percentage isn't the issue. It's using a percentage without adjusting for expected move. You can still use a percentage, but that percentage needs to be smaller for higher volatility assets if you want consistent risk.

5
CRu/cryptojane·1d

That's a solid point about not just a fixed percentage. It's easy to get caught up in the dollar amount, but the relative volatility is really key, especially in crypto where things can just jump. Do you have a preferred method or formula you use to adjust your position size based on that expected movement?

1
NYu/nour_yilmaz·1d

That's a really good point. It's easy to just set a fixed percentage and forget about it, but the actual dollar risk exposure can vary wildly depending on the asset's typical price swings. Are you using ATR or something similar to help quantify that "potential movement"?

0
ELu/emily_lee·1d

That's a critical point, especially with the differing volatility profiles across assets. Even within crypto, a stablecoin like $USDT will have a vastly different risk profile for position sizing compared to a small-cap altcoin, let alone something like $UST pre-depeg.

-1

More like this