System Quality NumberSM

(SQNSM)

Practical Application Workshop

 

Presented by R.J. Hixson

 

Stop searching for the Holy Grail trading system!  Knowing how to interpret the SQN score for your trading systems allows you to develop position sizing strategies for “good enough” trading systems and still reach your trading objectives!

 

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R.J. Hixson
System Quality Number Application

In the brand new “Applying System Quality Number Methods, The SQN Workshop”, students will:

  • Explore how to calculate a trading system’s System Quality Number score.
  • Determine what general types of position sizing strategies could be permissible for certain SQN score ranges, which strategies are inappropriate, and why.
  • See how specific position sizing strategies affect equity curves based on different systems’ SQN scores.

To learn more about this workshop, check out our 3 minute
Video featuring instructor RJ Hixson.

A Note from your Instructor, R.J. Hixson

Several years ago at a Van Tharp Institute workshop in Sydney, one of the students talked about a recent experience.  He had been working some trading numbers one night when he had an epiphany – “It was all in the position sizing strategy.”  He realized he could reach all of his financial goals by applying a particular position sizing strategy to his trading – and he started to cry.  He explained that they weren’t tears of joy, however, they were tears of frustration.  He shared how he had had the support of his wife for the previous eight years while he had worked very hard on improving his trading, that is, he had been trying to improve his few trading systems but that effort had not yielded much in the way of equity growth.  Part of his realization was that if he had started his position sizing strategy work much earlier, he believes he could have saved a few years.  With this workshop, we hope to save other traders a few years and a few tears of frustration. 

 

Let’s say you have trading objectives and you have some trading system performance information.  Let’s go so far as to say you are rock solid in those areas of your trading, however, you don’t really know how to make the connection between those two.  How do you do that?

 

That’s done through your position sizing strategies.  If you don’t have a systematic way of knowing how much to risk on each trade in each system that has been maximized for meeting your objectives – then there might be a crucial piece of knowledge or application missing.  If you are currently meeting your objectives, then no worries. 

 

If you aren’t meeting your objectives, then understanding position sizing strategies and knowing how to apply them to your trading might be enormously beneficial.  You have a few choices:


You could try a bunch of different position sizing strategies and see what you get.
• Maybe not so cheap in the end and this approach may take a long time, but if you like simplicity, it could be a good fit.

 

You could follow some of the money management guidelines that have been circulating for years.
• Probably better than using nothing, but . . . you can do better. 

 

You could buy or develop some sophisticated software to run a lot of calculations for you.
• Great approach for a programmer with a math minor . . . but not so much for the rest of us

 

You could learn a simple formula and apply that for effective results. 
• (Hint - Choose this one for simplicity, cost, effectiveness!)

 

Let me ask you this. What are you doing in your trading?  On a day-in day-out basis, what are you doing? 

  • Executing your trading systems?
  • Focusing on making no mistakes?
  • Watching the big picture?
  • Monitoring the market type?
  • Refining your rules?
  • Managing your psychology?

All of those are good tasks — and they are completely necessary for trading successfully.  How well would you say that your activities are helping you meet your objectives?  If you don’t understand how to develop and employ effective position sizing strategies, maybe not so well.  Why might that be?  Because you can do everything in that list above but without three key elements, your chances of reaching your objectives is minimal.  What are those three key elements to know about?

1.  Your trading objectives. 


Are they written down? Are they complete?  Do they drive what you do?


2.  Your trading system performance.


Do you have performance measurements for each trading system by market type?  Do you select your active systems through some set of criteria?


3.  Your position sizing strategies.


Your position sizing strategies are the primary drivers for your trading meeting your objectives. 

 

 

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Who Should Take This Workshop?

This workshop was designed for two groups of traders.


Group 1 – Traders who don’t understand how to create position sizing strategies that help them meet their trading objectives.


Group 2 – Traders who have a basic understanding of how to create position sizing strategies and who want to take their strategies to the next level. 

 

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Why Attend?

Workshop Benefits


• Understand what SQN scores mean and what SQN score for a system might be good enough for you – with knowledge about position sizing strategies, you can drop the search for a Holy Grail system.


• Know how to develop position sizing strategies that will help you meet your objectives – you will have done this in the workshop in the exercises.


• Define the criteria for a robust set of trading objectives – again you will work on your own objectives as part of the workshop.


• Learn how to use some simple simulation techniques to help craft effective position sizing strategies.


• Go home with a plan about what position sizing strategies might apply to your objectives and what steps to pursue next to implement your plan.


• As with any of our workshops, you will meet an international group of like-minded and inspiring people who trade the markets.

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Workshop Topics

SQN Formula

We will look at the idea behind the formula, the variables required, how and why it works to help you understand your system’s performance.

SQN Formula Variations

There are two primary versions of the SQN formula. You will understand both and when to apply each of them. The two variations provide different results – each of which is highly valuable in different situations.

Types of R Multiple Distributions

Different kinds of trading systems generate different kinds of R-multiple distributions. The type of distribution affects the SQN score for the system. You will learn how and why different aspects of trading systems affect the SQN score as well as consider what type of distributions might better align with your trading objectives.

The Benefits of High SQN Scoring Trading Systems

When you use trading system with a high SQN score, you have more flexibility using position sizing strategies to help you meet your objectives. How and why this is so will be covered in depth.

 

SQN - A Simple Way to Craft Effective Position Sizing Strategies

 

Understand how to use the SQN score to develop position sizing strategies that fit different objectives. You can get as complex as you like in this area but the SQN score makes the process quite simple.

Three Broad Categories of Position Sizing Strategies

All position sizing strategies are not created equally. Van has classified three main types and you will explore the differences.

Which Category of to Use

You may find that one category of position sizing strategies helps you meet your objectives over the other two. You will examine the reasons for concentrating your types of strategies versus utilizing two or three types.

How to Apply Seven Specific Position Sizing Strategies

We will study seven specific and very useful position sizing strategies in depth. In addition, each of these strategies has several variations to know about – which we will also cover in depth.

How To Calculate Your Max Portfolio Heat

Portfolio heat refers to the total risk you have exposed in the markets through your open positions. If you don’t manage this, an external event that impacts the entire market can wipe you out. Your position sizing strategies need to consider this important element.

How Losing Streaks Affect Your Position Sizing Strategies

If you are scratching your head about why your losing streak would have any effect on your position sizing strategy, you probably don’t trade a system that has long losing streaks. Even for systems with short losing streaks, however, developing your position sizing strategies should account for this factor.

Why Your Drawdowns Are More Important Than Your Returns

Your returns may make you rich but your drawdowns may take you out of the game.

The Differences Between Trading Objectives and System Objectives


They do different things, they sound different, and they can help or hinder your efforts if you don’t understand the differences.

Position Sizing Strategies That Reduce The Volatility of Your Equity Curve

You might think you don’t mind volatility in your equity or you might know it bothers you. Either way, knowing what kind of position sizing strategies could dampen volatility while still enabling equity growth would be highly valuable.

Minimize Risk to Your Capital But Generate Amazing Returns

There is one position sizing strategy in particular that is easy to understand and to implement which minimized the risk to your initial capital but also turbocharges your returns. It’s surprising that more people don’t use it.

The Martingale Strategy

Generally speaking, this is a position sizing strategy to be avoided in trading. We’ll cover why and a very rare exception to that guidance.

Allocating Money Among Trading Systems

If you know that you won’t use the same position sizing strategy on each system, how then do you split your capital among them? Is a simple even split best? Not likely.

When To Adjust Or Change Position Sizing Strategies

Sure, if your objectives change, you would adjust your strategies. But when else? What process would you use? What criteria would you define?

Given Objectives and SQNs, Determining Position Sizing Strategies

 

Students will work through several “hands-on” exercises where you will have to come up with position sizing strategies and see how well those did in relation to achieving the objectives.

Applying Different Position Sizing Strategies To One Trading System

In additional hands-on exercises, you will get to see how different strategies generate very different ending equity results using the same system

Applying The Same Position Sizing Strategy To Different Systems

You will also see how different systems (with different R multiple distributions) using the same strategy generate different ending equity results.

Monte Carlo Simulation

Learn about this simulation method and use a simple tool to help you run some simulations. You will also understand the limitations of this kind of simulation and whether or not you even want to use the tool for your position sizing strategy development.

Calculating Your Equity

Many position sizing strategies are built on risking some portion of equity. If you stop for a moment to think about it, however, how do you know how much equity you have? It’s not as simple as it may sound at first and we’ll look at three simple ways to determine your equity.

Ways you might test your system’s rules to improve the SQN Score

One of the most common questions we get from people who learn about the SQN formula is, “How do I improve my system’s SQN score?” We’ll study that question and consider whether or not you should even invest any more time or effort into that pursuit.

Psychological Biases Inhibiting Better Position Sizing Strategies

Why don’t most people learn about or use better position sizing strategies? There are serious psychological tendencies at work in your subconscious and we’ll bring those into the light.

 

Leverage

In one sense, leverage can significantly impact on your trading results. In another sense, you can reach many trading objectives through position sizing strategies without using (and worrying about) high leveraged instruments.


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The Inception of The System Quality Number Concept:

 

About 12 years ago, Dr. Van Tharp was preparing to release a software product intended to help traders develop position sizing strategies for their trading systems. In the process of writing the instruction manual, he started understanding system performance in an entirely new way.

 

He had at that point been using expectancy and the signal to noise ratio to evaluate system performance but both of those methods were limited in how effectively they could help a trader come up with a good position sizing strategy – good in that the strategy would deliver the returns but avoid the drawdowns. In working through the problem over a period of months, new ideas came to him and eventually, a new theory was born. Van viewed the new theory as a method or way to measure the quality of a trading system so he called it the System Quality Number or SQN for short.

The SQN score is not terribly complicated – anyone who passed high school math and who has some understanding of statistics can calculate the figure. The implications of the measurement, however, are extensive. They extend into trading system selection, system improvement, trading objectives, returns, drawdowns, risk per trade, total risk, compounding, equity volatility management . . . well, just see the subject areas covered in the section below for the full list.

Simply stated — understanding a trading system’s SQN score helps traders evaluate what kinds of position sizing strategies they could use. It also tells you the kinds of position sizing strategies that they should avoid.

Ultimately that software was used only for in house research and for various business reasons was never released as a product. Instead of writing a software manual as he started out to do, Van wrote a book to explain all of the new SQN concepts and related topics in “The Definitive Guide to Position Sizing Strategies”. By understanding and applying SQN concepts, traders really don’t need complex software to develop effective position sizing strategies. Since the book has been published, clients have asked from time to time about how the SQN concepts work and how to apply them to their trading. This workshop is a result of those requests.

While we discuss this subject area in two other live workshops, this new workshop will focus solely on the application of the SQN theories in trading for two full days. Our intent is for students both to understand SQN concepts in general as well as help them apply SQN methods to their own trading so they can better meet their objectives.

 

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What You Will Do In These Two Days

This is “hands-on” workshop being more “laboratory” than “theory”. You will spend about half of your workshop time in activities or exercises. The expectation is that you have a basic or intermediate understanding already about SQN plus position sizing strategies and this course will give you the direct experience to apply those concepts in order to improve your trading results.

 

In the workshop, you will:

 

Listen to Lectures


-There are still some things to cover in depth but there will always be an ongoing Q&A. The primary subjects include the SQN score, trading objectives, and position sizing strategies.

 

Play a Game


-Workshop students will play one of Van’s famous marble bag games. The game is an effective and fun way to apply your position sizing learnings.

 

Work with a Team


-For several case studies and a game, you will work with other members of the class for a few hours.

 

Work on your Own


-You will have some in course work to do and homework to do relating to your personal trading objectives and position sizing strategies.

 

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About Your Instructor

R.J. Hixson is a graduate of the Van’s Super Trader program. He was a longtime client and still a Super Trader student when he joined the VTI staff over 7 years ago.  R.J. was instrumental in updating the Definitive Guide to Position Sizing Strategies book for the second edition and developed our e-learning course “Introduction To Position Sizing Strategies”.  RJ's passion about Van’s SQN ideas and position sizing strategies have helped him become an in-house expert in the areas.  He has also been helping Van teach VTI workshops for several years and is the lead instructor for our systems development workshop.  He created this new workshop with Van to teach you how to apply the SQN score and position sizing strategies in a methodical, practical manner. 

 

We hope you can join him in August for this exciting new workshop to improve your comprehension about this critical area for trading success. 

 

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Course Pre-Work

Passing the test at the end of the “Definitive Guide” book with a minimum score of 85% is highly encouraged as preparation for this workshop, though we have not made that a prerequisite. Be aware, however, that this is an “intermediate” level workshop – attendees are expected to have a working knowledge of SQN basics and position sizing strategies. Workshop registrants who have not yet studied the Definitive Guide have access to a special price on the “Definitive Guide” book in order to prepare for the workshop ahead of time.

In addition, there will be a 5-10 page pdf file with questions to finish before the workshop. Once someone has registered for the workshop, the file will be sent to them.

Register Now, or View Dates
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