Traders' Roundtable

Hello,

As a good rule of thumb, what would be the maximum number of contracts to put on in a single commodity (or currency) so as to not affect the liquidity of the trade. I understand that number might change from grouping to grouping. The reason I ask this is because the system I'm developing will eagerly purchase as many contracts as it can (within the limits of the MM). When the equity is low, it will purchase for example 1-5 contracts per unit, but when equity gets high, it wants to purchase 100k + contracts. I arbitrarily put a "maximum" of 300 contracts per unit for all commodities, but since I've not actually traded yet, I'm not even sure if that value is too high to affect liquidity of the trades...

Thank you in advance,

Chuck

Why not use (gasp!) builtin functions?

a = Average(Volume, 20);
b = Average(OpenInterest, 20);
c = Min(a,b);
enough = c / 10 ;
.... all the rest of your calculations ....
d = your calculated number of contracts
If (d < enough) then trade d contracts else trade enough contracts


Take the 20 day moving average of volume and the 20 day moving average of open interest. Whichever of these is smallest, divide it by ten (or your favorite number) and don't trade more than that many contracts. Otherwise you will be more than ten percent of the market!!

Thanks! Thats an issue I will need to deal with when I roll out the commodity version of my system.

Thanks! I will test this tonight after I put the kids to bed!

Chuck