The Hitchhiker's Guide to Sizing | Metals Mine

  • The Hitchhiker's Guide to Sizing

    From substack.com

    Sizing a trade is often either oversimplified or overcomplicated. You will frequently hear that risking 1% per trade is a good rule of thumb, but is it really? Other investors sit at the opposite end of the spectrum, finding comfort in highly complicated models that run large covariance matrices with backward looking optimisation, only to realise that during market crises, correlations become unstable and often shift to 100%. Risk management that is too simple leads to erratic day-to-day volatility in your portfolio. Conversely, a system that is too complicated gives the illusion of perfect control over risks when, ... (full story)

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