![Page 1: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/1.jpg)
Gordon Scott, CMT
![Page 2: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/2.jpg)
Money Management is the primary method of controlling risk in trading or investing. It is the area of decision making that determines: How much money to risk on each trade
(Position Size) How to increase risk and opportunity
(Position Sizing StrategyTM)* How much cumulative risk to accept
(Portfolio Heat) How to apply Position Sizing Strategy in
conjunction with traditional technical analysis methods (trade optimization).
It is an underdeveloped area of Technical Analysis.
* Position Sizing Strategy is a trademark of Van Tharp Institute and is used here by permission.
![Page 3: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/3.jpg)
Acknowledgements:
Definitive Guide to Position Sizing, by Dr. Van K. Tharp
New Trading Systems and Methods, Perry J. Kauffman
Computer Analysis of the Futures Market, Chuck LeBeau
The Arcsine Distribution, Chris H. Rycroft
![Page 4: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/4.jpg)
![Page 5: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/5.jpg)
“Technical Analysis is the study of data generated by the action of markets and
by the behavior and psychology of market participants and observers. Such
study is usually applied to estimating the probabilities for the future course of
prices for a market, investment or speculation by interpreting the data in
the context of precedent.”
-MTA.ORG knowledgebase
![Page 6: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/6.jpg)
“…estimating the probabilities for the future
course of prices for a market...”
How about estimating the optimal strategies for
capitalizing on the course of prices for a market?
![Page 7: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/7.jpg)
YES. Especially when you consider…
How you apply money management, in conjunction with Technical Analysis, actually changes your trading outcomes
Without consideration for money management, the benefits of technical analysis can be negated
![Page 8: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/8.jpg)
Mathematical formula used in probability studies
Implies that trends, even in random data, are more likely than an equal distribution of “walks” (the progression of results).
Full definition in printed lecture given by Chris H. Rycroft available at this URL:
math.berkeley.edu/~chr/teach/Lec14_2006.pdf
![Page 9: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/9.jpg)
The Equation…
![Page 10: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/10.jpg)
The Equation…
appears graphically as…
![Page 11: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/11.jpg)
![Page 12: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/12.jpg)
![Page 13: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/13.jpg)
![Page 14: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/14.jpg)
![Page 15: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/15.jpg)
![Page 16: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/16.jpg)
![Page 17: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/17.jpg)
![Page 18: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/18.jpg)
![Page 19: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/19.jpg)
![Page 20: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/20.jpg)
![Page 21: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/21.jpg)
![Page 22: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/22.jpg)
![Page 23: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/23.jpg)
![Page 24: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/24.jpg)
Results are less likely to be symmetric across break even.
The more trades, the farther away from break even you are likely to move.
![Page 25: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/25.jpg)
Leverage a winning streak
Counter a losing streak as early as possible.
![Page 26: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/26.jpg)
Money management practices used in conjunction with price action can provide a sustainable edge in trading.
![Page 27: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/27.jpg)
A trading system with a positive track record, can be made more profitable with the use of increasing position sizes
![Page 28: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/28.jpg)
Single trade or small number of trades that are proportionally large winners.
Always keeping losses small.
![Page 29: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/29.jpg)
Good setup with high probability.
Small initial risk if trade does not produce gains
Large gains if trade and market are in sync.
![Page 30: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/30.jpg)
Flag Pattern Example
![Page 31: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/31.jpg)
Resistance
Support
Flag Pattern Example
![Page 32: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/32.jpg)
Flag Pattern Example
Breakout: $51$50
$46
$48
$52
$54
$42
$44
$56
![Page 33: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/33.jpg)
Flag Pattern Example
Breakout: $51$50
$46
$48
$52
$54
$42
$44
$56
Stop Loss: $48
![Page 34: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/34.jpg)
Flag Pattern Example
Standard trade setup
Breakout: $51$50
$46
$48
$52
$54
$42
$44
$56
Stop Loss: $48
Risk Per Share: $3
# of shares: 300
@ risk: $900
![Page 35: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/35.jpg)
Flag Pattern Example
Alternative Setup
Breakout: $51$50
$46
$48
$52
$54
$42
$44
$56
Evidence: your studies show that fifty to seventy percent of such patterns retest the trend line.
Problem: the trend line is downward sloping.
![Page 36: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/36.jpg)
Flag Pattern Example
Alternative Setup
Breakout: $51$50
$46
$48
$52
$54
$42
$44
$56
Solution: consider multiple entriesusing a fractional scale-in technique.
Stop Loss: $46
![Page 37: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/37.jpg)
Flag Pattern Example
Alternative Setup
Breakout: 100 shares @ $51 $50
$46
$48
$52
$54
$42
$44
$56
Stop Loss: $46
Entry two: 100 shares @ $49
Entry three: 100 shares @ $47
![Page 38: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/38.jpg)
Flag Pattern Example
Alternative Setup
Breakout: 100 shares @ $51 $50
$46
$48
$52
$54
$42
$44
$56
Stop Loss: $46
Entry two: 100 shares @ $49
Entry three: 100 shares @ $47
Risk Per Share: $5, $3, $1
# of shares: 100, 100, 100
@ risk: $900
![Page 39: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/39.jpg)
Flag Pattern Example
Alternative Setup
Breakout: 100 shares @ $51 $50
$46
$48
$52
$54
$42
$44
$56
Stop Loss: $46
Entry two: 100 shares @ $49
Entry three: 100 shares @ $47
Average Price: $49
# of shares: 300
@ risk: $900
![Page 40: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/40.jpg)
Flag Pattern Example
Standard trade setup
Single Entry: $51
$50
$46
$48
$52
$54
$42
$44
$56
Stop Loss: $48
Loss: $900
stopped out
![Page 41: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/41.jpg)
Flag Pattern Example
Alternative trade setup
$50
$46
$48
$52
$54
$42
$44
$56
Potential Exit: $57
Gain: $2400
Average Price: $49
![Page 42: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/42.jpg)
Flag Pattern Example
Alternative trade setup
Single Entry: $51
$50
$46
$48
$52
$54
$42
$44
$56
Potential Exit: $57
Gain: $2400
Average Price: $49
Potential Gain - Standard Setup: $1800
![Page 43: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/43.jpg)
Rectangle Pattern Example
Evidence: your studies show that sixty to seventy percent of trades that have breakout-day gaps outperform the trades that retest.
Problem: Which to buy?
![Page 44: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/44.jpg)
Rectangle Pattern Example
Solution: Prepare for both using a One-Cancels-Other order type.
![Page 45: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/45.jpg)
Rectangle Pattern Example
Limit order at breakout price
![Page 46: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/46.jpg)
Rectangle Pattern Example
Buy Stop order at gapped price (e.g. one-half ATR)
![Page 47: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/47.jpg)
Rectangle Pattern Example
Buy Stop order at gapped price (e.g. one-half ATR)
Limit order at breakout price
![Page 48: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/48.jpg)
Rectangle Pattern Example
Buy Stop orderLimit order at breakout price
![Page 49: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/49.jpg)
Rectangle Pattern Example
Buy Stop order
Stop Loss order
![Page 50: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/50.jpg)
Rectangle Pattern Example
Problem: How to maximize a promising trade
![Page 51: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/51.jpg)
Rectangle Pattern Example
Solution: Consider more than one entry using a multiple scale-in technique
![Page 52: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/52.jpg)
Rectangle Pattern Example
Solution: Consider more than one entry using a multiple scale-in technique
1-ATR stop loss
Enter position with normal size and risk
![Page 53: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/53.jpg)
Rectangle Pattern Example
Solution: Consider more than one entry using a multiple scale-in technique
move stop loss to break-even price
Add additional positionof same size
![Page 54: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/54.jpg)
Rectangle Pattern Example
Solution: Consider more than one entry using a multiple scale-in technique
Move stop loss to second entry price.
Second entry is new break-even price
Add final positionof same size
![Page 55: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/55.jpg)
Rectangle Pattern Example
Risk is the same,but opportunityis greater
3X
![Page 56: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/56.jpg)
Rectangle Pattern Example
Measure Risk vs. Reward from average price
![Page 57: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/57.jpg)
Rectangle Pattern Example
Measure Risk vs. Reward from average price
12X
1X
![Page 58: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/58.jpg)
Rectangle Pattern Example
Measure Risk vs. Reward from average price
12X
1X
Hypothetical Examples Only
![Page 59: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/59.jpg)
Chart below displays sample data for simulated trades.
System win rate = 40%
1 out of 10 trades could be a 5x
winner
![Page 60: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/60.jpg)
Notice how the beginnings of a losing streak were quickly negated by an outlier winning streak.
Circled portion shows a string of
three 5x winners in less than ten
trades
![Page 61: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/61.jpg)
Next five-trade losing streak could not wipe out all the profits
Trend of outcomes stayed away from break even until the next winning streak came along.
![Page 62: Gordon Scott, CMT - CMT Association · Acknowledgements: Definitive Guide to Position Sizing, by Dr. Van K. Tharp New Trading Systems and Methods, Perry J. Kauffman Computer Analysis](https://reader035.vdocuments.mx/reader035/viewer/2022081507/5aec330b7f8b9a90318df2ea/html5/thumbnails/62.jpg)
Arcsine law implies trends in outcomes.
Trade optimization and position size techniques can help swing results from a down trend to an uptrend.
Technical Analysis would benefit from studies on position size and trade optimization techniques.