How Position Sizing Changes Strategy Risk and Backtest Results
Summary
The article compares fixed-lot sizing with two balance-linked approaches: position size proportional to account balance, and size proportional to its square root. It uses a single EURUSD Expert Advisor, left at default strategy settings, to illustrate how the same trading logic can produce very different equity paths under different sizing rules. The author argues that fixed-lot results help assess a strategy's point-level behavior but do not establish that aggressive compounding is safe.
In the reported tests, proportional sizing greatly increased net profit but also produced a drawdown above 70% and a recovery factor below one. The square-root approach occupied a middle ground, with a more attractive curve and lower relative drawdown than geometric sizing in this example. These are results from one historical period and one EA, not general evidence that either sizing rule will perform similarly elsewhere. The central lesson is that money management cannot reliably rescue a strategy with poor expectancy, while aggressive sizing can undermine one that appears stable at fixed size.
Key ideas
- Fixed-lot testing can reveal a strategy's point-level behavior, but it does not establish the safety of compounding.
- Sizing positions in proportion to balance keeps relative exposure from declining as the account grows.
- In the example, geometric sizing raised profits alongside severe drawdown and a recovery factor below one.
- Square-root sizing produced intermediate results in the tested EA and period.
- Position-sizing conclusions are sensitive to the strategy, historical sample, and risk rule used.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.