ATR position sizing

[danielkrizian]

The true range is the daily trading range, or how many dollars the instrument moved in a particular day.
The average true range is an average of the true range over a set number of days, in our case 100 days.
If we multiply the average true range by the point value of the futures contract in question, we get a figure for how much profit or loss to expect from a normal day’s intraday movements in that contract.
Setting the risk factor to 0.002 means we are willing to get an impact of 0.2% on our portfolio, and so we need to multiply the risk factor with the portfolio value, or equity, to arrive at our desired daily impact in dollars.
Dividing this by the expected average impact of each contract gives us the number of contracts to buy, after rounding it down of course.

Clenow, Andreas F. (2012-11-26). Following the Trend: Diversified Managed Futures Trading (Wiley Trading) (Kindle Locations 1789-1792). Wiley. Kindle Edition.