I’ve been doing a lot of trading soul-searching these days. It has been a long slog of (almost) a year of trying to pass a prop firm evaluation to get funded. But it’s also been a very educational year; I have learned SO MUCH from Adam Mancini in terms of picking up the nuances of price action and the tendencies of ES. His newsletter gets better and better as he goes, and I cannot recommend subbing enough. (No, I don’t get any sort of affiliate perk if you sign up through that link; I just really, truly think it is the best resource for learning to trade ES, and it is dirt cheap.).
In the midst of my reflecting, something has been nagging at me: that perhaps my position management is not working for me at this stage. So I finally sat down to crunch some numbers:
What Mancini does:
Mancini (understandably) doesn’t share his exact position size, but he often talks about his standardized, algorithmic process for managing his trades:
- Take 75% at the 1st level, leaving 25% to run
- Take more profit at the 2nd level, leaving 10% to run
- Drag up the stop loss to break-even, then begin trailing the stop on the runner
Honestly, I didn’t think too much about the exact percentages; I more so thought about how it was broken into 3 tranches. But, dear Reader, I am realizing those percentages are important for me.
What I’ve been doing:
Since I’m in the evaluation phase of the Topstep 50k combine, I am allowed to trade up to 5 contracts at a time. So ya girl has been managing her trades like this:
- Core position – Take 3 cons (60%) at the 1st level, leaving 20% to run
- Runner – Take 1 con (20%) at the 2nd level, leaving 20% to run
- Long-distance Runner – Drag up the stop loss to break-even, then begin trailing the stop on the last 1 con
I call this my “Ideal” full size position because it allows me to have that Long-Distance Runner for those occasional times that ES rips 50+ pts.
HOWEVER. There have been many times where price will tag the 1st level, then fail and stop me out. I’ve internally debated whether I SHOULD leave room for the trade to work more (risking the remaining 40% to go red) or immediately drag the stop to breakeven or…? The problem has been that I try to answer this question on the fly, while in the trade with all the emotions and all the things happening…not exactly a recipe for good decision-making.
So I’ve been crunching le numbers. The difference between Mancini’s 75% core position and my 60% core is (obvi) 15%, which I did not think was a very big deal. But when it comes to edge (and I do believe his position management is a big part of his edge), this 15% difference is significant. That’s 15% MORE profit that he locks in, and therefore 15% LESS risk he continues to manage. Furthermore, his runners are 25% of his position; so if the runners take a 1R (1 unit of risk aka how much we want to risk on a trade, whether that be # of points or a dollar amount) loss, he still concludes the trade with 50% of the core position size in the green. For example:
Let’s say Mancini theoretically trades 40 contracts (like the king he is):
- He’ll take 30 cons off at the 1st level (75%), leaving 10 cons (25%) to go.
- Perhaps he’ll take 6 cons off at the 2nd lvl (15%), leaving 4 cons (10%) to go as a long-distance runner.
So let’s then put it in this scenario, using MES ($5 per pt):
- Let’s say it’s 7 pts in between levels, and his stop loss is -10 pts on his full position ($2,000 risk).
- The core position hits the 1st level, and Mancini locks in 30 cons at 7 pts profit ($1,050 profit).
- From here, worst case scenario happens, and price dumps quickly and the runners (10 cons) hit his original stop loss (-10 pts), leaving a -$500 loss on the runners.
- $1,050 – $500 = $550 profit on the trade.
Meanwhile, my noob butt is locking in 60% and letting 40% still be at risk. If we were to apply this management to the same scenario:
- I’d take 24 cons off at the 1st level (60%), leaving 16 cons (40%) to go.
- I’d take 8 cons off at the 2nd lvl (20%), leaving 8 cons (20%) to go as a long-distance runner.
So let’s then put it in the same scenario, using MES ($5 per pt):
- Let’s say it’s 7 pts in between levels, and my stop loss is -10 pts on my full position ($2,000 risk).
- The core position hits the 1st level, and I lock in 24 cons at 7 pts profit ($840 profit).
- From here, worst case scenario happens, and price dumps quickly and the runners (16 cons) hit the original stop loss (-10 pts), leaving a -$800 loss on the runners.
- $840 – $800 = $40 profit on the trade. (And it will be even less than that since there are fees/commissions.)
Obvi, given Topstep’s rules, I am working within the confines of 5 MES contracts, and in my previously mentioned “ideal positioning” I was just trying to make it reflect with the way Mancini’s management functions (core, runner, long-distance runner). But the way the positions function doesn’t mean JACK SQUAT if the risk isn’t managed properly.
(By the way, I listen to a lot of trading podcasts, and the generic tip everybody has is “manage risk!” Ok but like HOWWWW. It was always infuriating because the advice stopped there. Hopefully this post is helpful in someway to somebody.)
I write all this out to show the importance of adhering to the way Mancini does it, and to show you a clear apples-to-apples comparison of why my initial way of positioning is not working for me. If you want to have an edge like he does, you’ve GOT to follow his advice. Turns out the guy who has been doing this for years and years knows what he is talking about!
So how do I apply this to my measly 5 contract situation?
My “conservative” positioning: by taking 4 cons off at the 1st level (80%) and taking 1 con (20%) off at the 2nd level. No long-distance runner for now…or possibly at your discretion if you think we’re in for a wild trend day.
Again, let’s plug it into the scenario, using those percentages:
- Let’s say it’s 7 pts in between levels, and my stop loss is -10 pts on my full position ($2,000 risk).
- The core position hits the 1st level, and I lock in 32 cons (80%) at 7 pts profit ($1,120 profit).
- From here, worst case scenario happens, and price dumps quickly and the runners (8 cons, which is 20%) hit the original stop loss (-10 pts), leaving a -$400 loss on the runners.
- $1,120 – $400 = $720 profit on the trade
So in terms of pros and cons: the pro is that with the Conservative approach, I lock in more profit. But the con is that I don’t have a runner left to capture any moves beyond the second level. However, how common are 2-level moves vs 3+ level moves? (It’s a genuine question; I have yet to gather the data on this and calculate the probabilities.)
Speaking of probabilities…according to Mancini, the Fake Break Down has roughly an 80% win rate when executed correctly and the setup is PRIME. So with the Conservative approach, I aim to lock in 80% profits 80% of the time. 80% profits 80% of the time?!?! SIGN. ME. UP.
I did some more math to apply the supposed “Ideal” approach (I guess I should call it something else now since it’s really not ideal anymore, ha) to my specific situation, and I looked to explore all the possible scenarios of this approach vs my Conservative (see screenshots below).
A couple things to note that will help you understand my calculations:
- I’m assuming there are 7 pts between Mancini levels. I’ve been averaging the levels in his daily newsletter since April 1st, and the average distance so far is 7.85 pts, to be exact.
- I’m assuming a 10 pt risk. (Mancini says his general risk is usually 8-11 pts.)
- My max loss per trade is $250. This is because I’ve got a short leash with Topstep – a $1,000 daily loss limit, and a $2,000 trailing EOD max loss limit. I could take about 7 consecutive full size losses (with commissions and fees) before hitting the $2,000 max loss.
- Since I’m using Topstep/Rithmic/Ninjatrader, the commissions/fees per contract roundtrip (entries and exits) are $1.42 per contract.
So with all that in mind, here are my calculations:
NOT-SO-IDEAL Full Size approach:
CONSERVATIVE Full Size approach:
Again, as you can see, my gains are capped with the Conservative approach because I’m losing that Long-Distance Runner, but the profits are greater. I’m more eager to lock in consistent, greater profits than to risk an already-green contract for the sake of a 3+ level runner that is statistically less likely to happen because, according to Mancini, 90% of moves don’t follow through.
So this is my approach for now, especially while trying to stack wins and grow the account in order to pass the Topstep evaluation. (Well, this AND also calling it quits for the day after a winning trade…but that is a whole other blog.)
One day, I’ll have a bigger account and can apply Mancini’s 75/25/10% approach better (even just 10 contracts could translate to 7 core, 2 runner, 1 LD runner). But for now, 80/20 it is!