In futures trading, position sizing will determine the number of contracts to trade per trading system entry signal. Since we focus on day-trading strategies with fixed dollar stops, our position sizing will be determined based on margin requirements and maximum draw down for each trading system or portfolio that is traded. For example, if the suggested capital for a trading system portfolio is $25,000 and a trading account balance is $50,000, then the maximum number of units for that portfolio would be two. This is the most aggressive approach for position sizing. As profits or deposits are added then additional units can be traded in multiples of $25,000. A more conservative trader or futures investor may only want to trade one unit per $50,000 or $100,000 on a $25,000 portfolio.
When position sizing individual systems, it is important to look at the draw down plus margin requirements to determine the minimum amount of capital needed to trade each trading system. Using the minimum amount of capital is the most aggressive approach. When day-trading, the exchanges provide lower margin requirements so that less capital is required, since the position is not being held overnight.
It is possible to write algorithms for position sizing. There are some trading algorithms that show a geometric increase in the number of contracts based on increasing profits creating exponential equity curves. Aggressively increasing the number of contracts as fast as possible based on the most minimal capital requirements can create large amounts of volatility in the equity in a trading account. Position sizing an account this aggressively can be an all or none approach and can create an account blowout with a single execution error, major market event, or trading system failure such as hitting a worse case drawdown.