Volatility Scaling Position Sizing

Volatility scaling position sizing is a capital management method that dynamically adjusts trading position size based on market volatility. This method monitors changes in market volatility and adjusts position size accordingly to maintain relatively stable risk exposure.

Calculation Principle

Volatility scaling position sizing calculates position size using the following formula:

Position Size = Base Position Size × (Target Volatility / Current Volatility)

Where:

• Base Position Size: Base position size
• Target Volatility: Target volatility
• Current Volatility: Current market volatility

Parameter Description

• timeperiod: Volatility calculation period, default 30 days

Usage Recommendations

1. The volatility period can be adjusted according to the trading cycle
2. The target volatility should be set according to risk tolerance
3. Regularly evaluate and adjust parameters
4. Consider changes in market environment