Position Sizing – Part 2 | From Backtest to Leverage | The Long & The Short Ep.20

Welcome to The Long & The Short – a show where you can expect an honest take on trading, something you won’t hear elsewhere. I’m your host, Sandeep Rao (SEBI Registered Research Analyst – INH000013059). In this episode, we move from concepts into practical implementation by using real backtest data to build a position sizing framework that can actually survive real market conditions. We revisit the Nifty and Gold trend following backtest and extend the Part 1 question: how position sizing changes when trading a single leg versus a combined uncorrelated portfolio. The episode explains how to read backtest metrics like return and drawdown, why raw drawdown numbers are often unrealistic, and why applying a 2x buffer helps account for real market loss clustering. We also show why leverage should be evaluated using contract value, how combining assets like Nifty and Gold can reduce portfolio drawdowns, and how to build a true 50:50 portfolio using contract value ratios instead of lot count. The episode closes by explaining why option buying requires separate backtests due to different payoff structures and decay dynamics. The core idea is simple: position sizing is about survival first, returns later. 📌 Chapters: 00:00 Part 2 Intro & Part 1 Summary 02:13 Nifty Only Trend Following & 2x Drawdown Reality 03:22 Position Sizing Using Backtest + Leverage Impact 04:55 Nifty + Gold Combined Portfolio & 50:50 Allocation Logic 10:15 Options Position Sizing & Part 3 Preview If you prefer reading, we've written a post about this episode here: https://inthemoneybyzerodha.substack.... Do check out our newsletter "Aftermarket Report" where we do a quick daily wrap-up of what happened in the markets, both in India and globally. here: https://aftermarketreport.substack.com/ Check out Varsity Live, a hands-on way to learn finance with experts. Instead of only listening, you practice in real time through activities like personal finance planning, technical charting, balance sheet analysis, and more: https://varsitylive.zerodha.com/home Disclaimer: Investments in securities are subject to market risks. Please read all related documents carefully before investing. SEBI registration does not guarantee the performance of the intermediary or assure returns to investors. The securities mentioned are for illustrative purposes only and do not constitute a recommendation. By proceeding, you acknowledge and agree that any returns shown on this platform are solely for informational purposes. They are not intended to serve as advertisements or promotional material, nor should they influence your investment decisions. Trading and investment decisions should be made at your own discretion, and it is strongly advised to consult a qualified financial advisor before acting on any information provided. Note: Some image(s) may have been created using Al, no copyright infringement is intended. About Zerodha At Zerodha, we simplify complex financial topics to empower you with the knowledge to make smarter investment choices. Whether you're just getting started or looking to sharpen your skills, we’re here to help you navigate the financial world with clarity.