Options · Building an options strategy · lesson 6 of 9 · 6 min read · David Alexander
Max-loss sizing in the test
max-loss sizing in the test
A tested options rule must be sized in the test the way it would be traded - by maximum loss (module 4) - or its results are meaningless. Testing a rule at one contract when it would be traded sized by max loss, or worse testing undefined-risk rules that cannot be safely sized at all, produces results that do not describe any tradeable position. The sizing method is part of the rule, and the test that ignores it tests something the trader would never do.
This lesson is part of the advanced modules.
Modules 6 to 8 are included with a paid account. The definitional summary above is the whole of this page until then.