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Position Sizing

Position sizing is how the system decides how big each trade should be. This is one of the most important pages in the wiki because a strategy can be directionally right and still blow up if the size is wrong.

The basic idea is simple: the system first decides how much account risk it is willing to take, then backs into the number of contracts from the stop distance and the option's delta. If terms like ATR, EMA, or delta are unfamiliar, see the Glossary.

The Rules

  • Fixed-fraction sizing. Never Kelly. Kelly + costs = death spiral.
  • Risk per trade is a hard cap. No exceptions for "high conviction."

The first rule exists because Kelly sizing is too aggressive once real trading costs are included. The second rule exists because "this one looks amazing" is how traders talk themselves into oversized losses.

By Plan

Plan H (Day Trading)

Plan H sizes off the distance to EMA21, which acts as the initial stop line. The farther price is from that line, the fewer contracts the system can take.

base_risk = 6% of equity
throttle  = 2% if 3+ consecutive losses (resets daily)
stop_dist = max(|close - EMA21|, 0.10)
risk_per_contract = stop_dist * 0.43 * 100
contracts = min(floor(risk / risk_per_contract), 50)

Plan M (Swing Trading)

Plan M uses ATR, or Average True Range, to estimate how much a stock normally moves. The stop is set at 2 ATR, then contract count is derived from that.

risk = 5% of equity ($3,500 on $70K)
stop = 2 ATR from entry
shares = risk / (2 * ATR)
contracts = shares / delta (0.80)

Plan C (Crash Shorts)

Plan C is the crash short plan, so its size depends on the distance between entry and EMA50, which acts as the initial stop.

risk = 5% of equity
stop_dist = |entry - EMA50|
contracts = floor(risk / (stop_dist * 0.43 * 100))

Plan Alpha

Plan Alpha keeps sizing deliberately simple. Instead of tying size to account equity every time, it uses a flat budget per trade so multiple crash signals can be diversified across names.

budget = $3,500 per trade (flat)
contracts = floor(budget / (option_mid * 100))

No daily cap — take every signal with liquid options. Lowest RSI gets priority.

RSI is the Relative Strength Index, a momentum measure. Lower RSI means the stock has been sold more aggressively.

Pyramiding (Plan H Only)

Pyramiding means adding to a winning position instead of starting at full size. Plan H only does this after the trade has already proven itself.

  • Tier 2 (+30% option P&L): Add floor(base * 0.5) contracts (max 25)
  • Tier 3 (+100% option P&L): Add floor(base * 0.25) contracts (max 12)
  • T2/T3 P&L measured from THEIR entry, not base entry
  • Each tier charged separately for fees

Loss Throttles

These rules are there to slow the system down when conditions or execution quality are deteriorating.

  • Plan H: 3 consecutive losses → risk drops from 6% to 2% until first winner
  • Plan M: 3 losers in a single day → no new trades for 1 week
  • Global: Loss state tracked in global_loss_state.json