Fixed fractional versus volatility-adjusted sizing for scalps

[FXS London Scalper]

Two common ways to size: fixed fractional (risk a fixed percentage per trade, size based on stop) and volatility-adjusted (size based on ATR, stop also based on ATR). For scalping, they work out differently than you might think.

Fixed fractional

• Risk 0.5% per trade, stop based on structure.
• A wide stop means a small size, a tight stop a large size.
• Risk per trade stays the same in money.

Volatility-adjusted

• Stop = 1× ATR(14) on M5, size = risk / stop.
• On volatile days, a wider stop and smaller size, automatically.
• Risk in money also stays the same, but the stop no longer follows structure.

In both cases, money at risk is constant. The real difference is where the stop goes. Structure stops can be very tight in quiet markets, which leads to large sizes, and costs then become a bigger share of the stop.

I tested both over the same 400 trades (re-simulated): expectancy similar, but the volatility-adjusted version had fewer trades stopped out by noise, and a smoother equity curve.

What I do now: structure-based stop, but never tighter than 0.7× ATR. A hybrid. How do you size your scalps?