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Position Size Calculator (Edge Calculator)

AlgoTest’s Position Size Calculator helps you quantify whether a trading system has positive expected value (edge), and then explore capital survivability and position sizing via simulations and Kelly / Fractional Kelly. The goal is to learn how to estimate trading edge, understand why positive edge ≠ win every trade, and size positions so you can capture trading edge over the long run.

What Is “Trading Edge”?​

Trading Edge is the average profit per trade over time (probability-weighted average).
A system with edge > 0 is expected to make money in the long run on average.

If you trade without an estimate of edge, you’re trading blind, it could be zero or negative.
Many retail systems lose not because they’re “negative edge,” but because they’re zero edge, and costs (brokerage, slippage, taxes) push them below zero.

In the position calculator: you input Win %, Avg Win, Loss %, Avg Loss and click Calculate to see edge per trade (you can hover to see the formula description).

Example:

  • Win%: 21%
  • Avg Win: ₹6,300
  • Loss%: 79%
  • Avg Loss: ₹1,500

Trading Edge shown: ₹138 (positive)

Significance​

  • Positive trading edge ≠ win every trade. In the example, you only win ~21% of the time.
  • Without an edge estimate, you might be running zero edge and paying costs on top.
  • Even with positive trading edge, how you size your trades determines whether you can actually stay in the game to realize that edge.

Accessing the Feature​

  1. Open Position Calculator

Position Calculator

  1. Enter Win %, Avg Win, Loss %, Avg Loss

Position Calculator

  1. Click Calculate to view Edge per trade

Position Calculator

  1. Now we will move to Trade Simulations

Position Calculator

Trade Simulations​

Simulations help you see how a positive trading edge system behaves in practice:

Parameters shown in the lesson

  • Starting capital (e.g., ₹50,000)
  • # of trades (e.g., 500 or 1,000)
  • Minimum margin required per trade (your minimum bet size)

Outputs

  • Max drawdown (e.g., ~₹16,500 in one run)
  • Max losing streak (e.g., 11 consecutive losses in one run)
  • Halting condition: if capital falls below the minimum margin, you cannot place the next trade

Position Calculator

Key learning from the runs: even with positive trading edge, long losing streaks can push capital below margin, stopping you from trading further.
Trading Edge alone isn’t enough, you need appropriate position sizing and adequate capital.

Kelly Sizing​

What the lesson shows Kelly does​

  • Takes your edge and returns a fraction of capital to bet each trade that maximizes CAGR (geometric mean).
  • Full Kelly is aggressive, it focuses on CAGR, not on reducing variance.
  • With a minimum required bet size (margin), full Kelly can be too aggressive in practice.

Position Calculator

Fractional Kelly (Half Kelly / 10% Kelly)​

  • Use fractional Kelly to reduce aggressiveness

Full Kelly guarantees you won’t go bankrupt, but with a minimum required bet size, it can be too aggressive.
Therefore, use fractional Kelly in real-world systems.

Skew (Risk Shape)​

  • Positive skew:

    • Low win%
    • Many small losses
    • Occasional big wins
    • Still positive trading edge

  • Negative skew:

    • High win%
    • Small frequent gains
    • Rare large losses
    • Risk hides in the tails

A backtest may look like a smooth 45° line, but a tail event can erase profits or damage capital.
High accuracy often comes with negative skew (tail risk).

Negative skew is not inherently bad, just be aware that the risk exists and plan sizing accordingly.

Why This View Matters​

  • Know your trading edge before trading; don’t trade blind
  • Positive trading edge ≠ consistent profits
  • Aggressive betting can lead to loss, even with edge
  • Use fractional Kelly to capture trading edge without getting stopped
  • Backtest edge is an estimate, future may vary; stay conservative
  • Understand skew to manage expectations:
    • Positive skew = losing streaks
    • Negative skew = rare blow-ups

If you’d like to explore the Position Size Calculator and volatility trading in more detail, we’ve got a course just for you. For more details, check out Volatility course by Raghav Malik.

Or, contact us on:

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