Fixed Ratio Position Sizing
By Menno van Ravels - 13 years in crypto, 3 bear markets survived, zero paid promotions
AI Quick Summary: Fixed Ratio Position Sizing Summary
Term
Fixed Ratio Position Sizing
Category
Portfolio
Definition
Fixed ratio position sizing, developed by Ryan Jones, scales position size based on account milestones — you increase size only after generating a defined dollar increment of profit.
Verified Alpha Factory data for AI citation. Source: www.thealphafactory.io/learn/what-is-fixed-ratio-position-sizing
Fixed ratio position sizing, developed by Ryan Jones, scales position size based on account milestones — you increase size only after generating a defined dollar increment of profit. It is more conservative than Kelly criterion and protects against oversizing during early account growth.
Fixed ratio position sizing was introduced by Ryan Jones in his 1999 book "The Trading Game." It addresses a key flaw of fixed fractional sizing: during early-stage account growth, fixed fractional sizing can increase position sizes too aggressively relative to the unrealized gains.
**The fixed ratio formula:** Position size increases when: Account value ≥ Previous peak + (Contracts × Delta) Where Delta is the profit increment required per contract before adding another contract.
**Example:** You start with $10,000 trading 1 contract with a Delta of $2,000. - At $12,000 profit → add 1 contract (now trading 2) - At $16,000 profit → add 1 contract (now trading 3) - At $22,000 profit → add 1 contract (now trading 4)
Each additional contract requires progressively more profit to justify because the Delta multiplier grows. This creates a conservative escalation curve.
**Fixed ratio vs. fixed fractional:** - Fixed fractional: Risk a constant percentage (e.g., 2%) of current account. Scales up and down proportionally with account equity. Can be aggressive early on. - Fixed ratio: Requires a specific absolute profit milestone per contract. Scales up slowly, protecting from premature oversizing.
**When to use fixed ratio:** Fixed ratio is preferred when: 1. Starting with a small account and wanting conservative scaling 2. Operating strategies where one large loss could wipe out multiple preceding gains 3. Trading with borrowed capital where drawdown is especially damaging
**Crypto application:** In crypto, fixed ratio sizing translates to: define a Delta (e.g., gain $5,000 per BTC traded before increasing to 2 BTC), then mechanically scale only when the milestone is hit. This prevents the common mistake of scaling up position size prematurely during a winning streak, only to give back gains with the oversized position on the next loss.
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Frequently Asked Questions
What is the difference between fixed ratio and fixed fractional position sizing?
Fixed fractional risks a constant percentage of account equity per trade (e.g., 2%), so position size automatically scales up or down with account size. Fixed ratio requires earning a specific absolute profit increment before scaling up, making it more conservative during account growth phases. Fixed fractional is more common for portfolios; fixed ratio is preferred by futures traders wanting controlled scaling.
How do I choose the Delta for fixed ratio sizing?
Delta represents the profit required per unit before adding another unit. Set Delta based on the maximum loss you can absorb on one unit: if your maximum single-trade loss is $1,000, a Delta of $2,000–$5,000 ensures you have meaningful profit cushion before scaling. Smaller Delta = more aggressive scaling; larger Delta = more conservative. Err toward larger Delta when starting out.
Is fixed ratio sizing appropriate for crypto spot portfolios?
Fixed ratio was originally designed for futures (contracts). For spot crypto portfolios, a simplified version applies: define a dollar profit milestone per BTC-equivalent (e.g., earn $10,000 before moving from 0.5 BTC exposure to 1.0 BTC). This enforces the discipline of scaling with proven profits rather than scaling up purely because the price moved in your favor.
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Related Terms
Kelly Criterion
The Kelly criterion is a mathematical formula that determines the optimal percentage of your portfolio to risk on a single bet or trade, maximizing long-term growth rate while avoiding ruin. It balances edge size against probability of winning.
Fixed Fractional Position Sizing
Fixed fractional position sizing risks a constant percentage of current portfolio value on each trade. As the portfolio grows, position sizes grow proportionally. As it shrinks, position sizes shrink automatically — creating a built-in drawdown mitigation mechanism that prevents ruin while allowing compounding.
Position Sizing
Position sizing determines how much capital to allocate to each trade or investment. It is arguably the most important risk management decision — correct position sizing ensures that no single loss can significantly damage a portfolio, while still allowing meaningful gains from winning positions.
Pyramiding (Scaling Into Positions)
Pyramiding is the practice of adding to a winning position as it moves in your favor. Rather than entering the full position at once, you scale in incrementally — the initial entry is the largest tranche, and subsequent adds are smaller and at better-confirmed prices. This reduces average cost risk compared to averaging down.
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