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Position Sizing Effects on Trading

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Supervisor
Prof. Bo Ekehammar, Uppsala
University/Stockholm School of
Economics.
Examiner
Prof. Claes von Hofsten, Uppsala
University.
Copyright
Johan Ginyard, 2001.
All rights reserved. No part of this paper may be reproduced, in any
form or by any means, without permission in writing from the author.

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Position Sizing Effects on Trading
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1
UPPSALA UNIVERSITY
Department of Psychology
Master thesis, 20 p
Position-sizing Effects on Trader Performance:
An experimental analysis
Author
Johan Ginyard
Supervisor
Prof. Bo Ekehammar, Uppsala
University/Stockholm School of
Economics.
Examiner
Prof. Claes von Hofsten, Uppsala
University.
Copyright
Johan Ginyard, 2001.
All rights reserved. No part of this paper may be reproduced, in any
form or by any means, without permission in writing from the author.
3
Position-sizing Effects on Trader Performance:
An experimental analysis
1
Abstract
Non-academic literature on stock and futures trading emphasizes
the importance of “money management”, here defined as “how
much of available capital is to be allocated in a specific market
position”, also called position size. The effect of position size was
experimentally studied by letting two groups trade fictitious capital
through a series of trades, with only one variable available for
manipulation by the participants, that is, how much of available
capital to be put at risk in each and every trade. The treatment
group had received a three-hour lecture in position sizing, risk
management, and psychological biases, whereas the control group
did not. The results showed that participants in the treatment
group lost all their money to a lesser extent (
p
< .01) than those in
the control group. However, the treatment group did not gain
significantly higher profits than the control group. Traders being
able to gain money over the long run were taking smaller positions
than losing and bankrupt traders were (
p
< .0001). By receiving a
theoretical education, without any practical training, the risk for a
trader of going bankrupt when trading simulated stocks was
decreased to a tenth.
1
This study was made feasible by financial contribution from
Nordea Markets
, Copenhagen, Denmark and
BörsInsikt
AB
, Stockholm, Sweden, making it possible to pay the remuneration of the participants. They have shown great courage by
supporting a study in behavioral finance, by a graduate student of psychology.

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