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Backtesting & Validation Checklist

Position Sizing Review Checklist

Sizing decides whether a real edge compounds or a sampling fluke wipes you out. This checklist reviews how much to bet given a signal, separate from whether the signal is any good.

12 ITEMSPublished May 26, 2026Live Content
By AI Fin Hub Research · AI Fin Hub Team

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Checklist Sections

Work in focused batches instead of one long wall

Section 1

Phase 1: Honest inputs

3 items
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Position Sizing under Edge Variance

Bayesian-Kelly bet sizing when your edge is itself uncertain. Compare deterministic Kelly, Bayesian-adjusted, and conservative lower-bound versions.

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Section 2

Phase 2: Kelly discipline

3 items
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Fractional Kelly Sizer

Map conviction tiers to fractional Kelly bet sizes with a drawdown Monte Carlo simulator. Client-side. Private by default.

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Section 3

Phase 3: Portfolio-level limits

3 items
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Correlation Matrix Visualizer

Paste a multi-asset returns CSV. See the Pearson correlation heatmap, condition number, average absolute correlation, and eigenvalue concentration.

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Section 4

Phase 4: Drawdown stress

3 items
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Drawdown-Recovery Markov Simulator

Time to recover from an N% drawdown given monthly Sharpe + skew + kurtosis. Cornish-Fisher Monte Carlo, percentile distribution of recovery months.

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Pro Tips

Small moves that make the checklist easier to finish

Kelly is exquisitely sensitive to the edge estimate, and the estimate is always too optimistic. Betting a fraction is not timidity, it is the correction for the error you cannot see.
Correlated positions are one bet in a crisis, even if they look like ten in calm markets. Size the cluster, not just the individual line.
Look at the drawdown distribution, not the average return. You will live through the path, and a strategy you cannot psychologically hold is a strategy you will abandon at the worst moment.

Sources & References

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Planning estimates only — not financial, tax, or investment advice.