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Volatility-Parity Sizingequal risk, not equal lots

Evidence: StrongIntermediateRisk · Portfolio

Two positions of the same size in gold and in EURGBP are not two equal bets. Gold's daily range can be several times the cross's, so the gold position is doing most of the work and carrying most of the risk while looking identical on the platform.

Volatility parity fixes that by sizing each position so that a one-standard-deviation move means the same amount of money in every instrument. It is the single highest-value change most multi-instrument retail accounts can make.

This is a sizing rule, not a trade. It sits on top of whatever entries you run, and its effect is on the shape of the equity curve rather than on whether any individual trade wins.

Applies to
Any account trading more than one instrument
Timeframe
Any · re-estimate volatility weekly
The formula
size ∝ 1 ÷ (ATR of the instrument × value per point)
Typical setting
Target the same currency risk per position, then cap the total
Tools
ATR(20) per instrument · value per point per instrument · a shared target risk figure

Valid setup

RK-02 · VOLATILITY-PARITY SIZING — ACCOUNT EQUITY the same instruments, sized so a 1 × ATR move means the same money in each — the curve is smoother, not higher EQUITY 94.0 98.0 102.0 106.0 110.0 114.0 118.0 ALL POSITIONS CONTRIBUTING ROUGHLY EQUALLY GOLD'S VOLATILITY DOUBLES — ITS POSITION HALVES PARITY RESTORED AT THE NEW VOLATILITY 20-period mean starting balance 1 2 3 100.0 the instrument's ATR — the size moves inversely to this line ① One target: what a 1 × ATR move is worth, in money ② Volatility rises, so the position falls — automatically ③ The platform looks unbalanced. The risk is not ④ Re-estimated weekly, not at entry only ⑤ Parity assumes independence — pair it with RK-04 ⑥ The benefit is a smoother curve, not a higher one

Exact rules

When it applies

  • Pick one target: the amount of money a 1 × ATR(20) move should represent. That number is the same for every instrument you trade.
  • Size each position to hit it. Gold gets a small position, a quiet cross gets a large one, and the platform will look unbalanced — it is not.
  • Re-estimate weekly. Volatility changes and a size set three months ago is no longer parity.
  • Apply it before any conviction adjustment. Parity first, opinions after, if at all.

The risk cap

  • Individual stops still come from structure — parity sets the size, not the level.
  • Cap total portfolio risk after parity, not before. Parity makes positions comparable; it does not make ten of them safe.
  • If an instrument's volatility doubles, its position halves. That will feel wrong exactly when it matters most.

Sizing and review

  • Review the realised contribution each month: which instruments actually moved your equity. Under parity, no single instrument should dominate.
  • If one does, either your parity estimate is stale or your positions are correlated — see the correlation page.
  • This rule is also what makes a portfolio's results interpretable. Without it you cannot tell whether a strategy worked or whether gold simply moved.

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Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.