Most traders think about scaling in one dimension: add more contracts. More size. More risk per trade. That approach works – until it doesn’t.
There’s a smarter way to grow a trading business. Tomas has been using it for years, deployed it in his institutional hedge fund, and calls it System Sizing. It’s not just a scaling tactic – it’s a fundamentally different way of thinking about how your trading operation grows.
Why the Hedge Fund Changed Its Approach to Portfolios
To understand why System Sizing matters, it helps to know the context it came out of. Earlier this year, Tomas’s hedge fund transitioned from serving retail clients to serving institutional investors – other hedge funds and major banks. That single change transformed everything.
Retail clients wanted high returns. The hedge fund was previously aiming for 60-80% per year. Institutional clients – banks, larger funds using the hedge fund’s know-how as a diversification layer – wanted something completely different: 15-20% annual returns, but with the lowest possible volatility and the smoothest equity curve achievable.
That shift required redesigning the portfolios entirely. Less aggressive position sizing. Lower risk per trade. Portfolios built specifically for smooth equity rather than maximum return. And alongside this, the hedge fund began developing a new batch of strategies to open additional CTA programs as low-correlation diversification to existing programs.
All of that feeds directly into System Sizing.
What System Sizing Actually Is
Traditional scaling is vertical: when your account reaches a certain profit threshold, you add another contract to your existing strategies. More size, same strategies.
System Sizing is horizontal: when you reach that same profit threshold, instead of adding a contract, you add a new trading strategy.
The logic is straightforward, but the implications are significant. If you add a second contract to a strategy you’re already trading, you now have two correlated units doing the same thing at the same time. Your exposure doubles, and your correlation stays at 1.0 – there’s no diversification benefit whatsoever.
If you instead add a new, different strategy, you get something closer to 2x the exposure but with lower mutual correlation. You’ve grown your size while simultaneously improving your portfolio’s diversification structure.
If you want to smooth your equity curve, you always want to think in terms of correlations first. You want diversity among markets, timeframes, strategies, and exits to keep correlations broad and low. That’s how you smooth your equity.
The 15-Minute Exit Trick
One of the more elegant applications of System Sizing: you don’t always need a completely different strategy. Sometimes a small variation is enough to meaningfully reduce correlation.
Tomas’s example: take an Index day-trading strategy that exits at end of day (4:15pm Chicago time). Now create a second version of the same strategy that exits 15 minutes earlier – 4:00pm. Same logic, same entry rules, just a different exit time.
You would be surprised how much difference that 15 minutes can make. The two strategies now have lower correlation to each other than trading two contracts of the same strategy. You’re still effectively increasing your exposure in that market, but the profit/loss distribution across the two units is meaningfully different.
This kind of variation – different exit times, slightly different parameters, different sessions – is an accessible entry point into System Sizing even if you don’t yet have a large library of completely different strategies. The principle extends to any dimension where you can introduce variation: timeframes, stop-loss levels, different markets with similar setups.
System Sizing vs. Position Sizing: The Right Order
Tomas’s recommendation is clear: scale horizontally first, then vertically.
Horizontal first (System Sizing)
- Add new strategies – different markets, different timeframes, different exits
- Get broad coverage across many low-correlation trading systems
- Build the portfolio structure that smooths your equity curve
Vertical second (Position Sizing)
- Once you’re well spread horizontally, start adding contracts
- Now your increased position size sits across a diversified, low-correlation base
- The equity curve smoothing from the horizontal spread protects you as you scale vertically
This ordering matters. If you jump straight to position sizing before you have a diversified portfolio, you’re amplifying the volatility of a concentrated book. Every drawdown hits harder because all your strategies are correlated and pulling in the same direction at the same time.
By building the horizontal diversity first, you create a situation where when you do scale vertically, the volatility increases more slowly than the total return potential. That’s what institutional investors are paying for – and it’s available to individual traders at any account size.
Why This Works Even With a Smaller Account
System Sizing isn’t reserved for hedge funds with large capital bases. The principle applies at any scale.
If you’re trading futures with a modest account and you’re deciding whether to add a second contract to your best strategy or use that capital to fund a second, different strategy – the second-strategy path will almost always produce better risk-adjusted returns over time. The diversification benefit is real at $20,000 just as it is at $20 million.
The practical constraint at smaller account sizes is minimum margin requirements. Not every futures market is accessible with a small account. But the concept still applies: work with the markets you can access and find ways to create variation – different contracts, different timeframes, different exit logic – rather than simply running more size on the same single system.
What This Looks Like in the Hedge Fund Right Now
In practice, Tomas’s hedge fund runs System Sizing and Position Sizing in parallel. New capital coming in each month gets spread across new strategies (System Sizing component) while existing strategies also grow in size as performance warrants (Position Sizing component). Both levers are pulled simultaneously, but the horizontal expansion is always kept in focus – because that’s what maintains the low-volatility, smooth-equity characteristics their institutional investors require.
The ongoing development of new strategy batches and new CTA programs is the institutional version of System Sizing in action: more programs with low correlation to each other, providing diversification at the program level, not just within a single portfolio.
The Foundation This Requires
System Sizing only delivers its benefits if the strategies you’re adding are genuinely high-quality and genuinely low-correlation. Adding a poorly validated strategy to your portfolio doesn’t diversify it – it just adds a source of bad trades.
This is why Tomas consistently returns to the foundation: you need Robustness Level 3 strategies before System Sizing makes sense. You need strategies that have survived rigorous testing and have a real, demonstrable edge. Only then does horizontal expansion improve your portfolio rather than dilute it.
If you’re not yet at that point – if you don’t yet have a sufficient number of robust, validated strategies – the priority is to build that library before thinking about System Sizing. The Breakout Strategies Masterclass framework, working through Part 1, Part 2, and Part 3, is how to build that library systematically.
For an introduction to the breakout methodology that underpins these strategies, see Breakout Trading Explained or, if you’re newer to the approach, Breakout Trading for Beginners.
Summary: System Sizing in Practice
| Approach | What You Add | Effect on Correlation | Equity Curve Impact |
|---|---|---|---|
| Position Sizing (vertical) | More contracts on existing strategies | None – correlation stays at 1.0 | More volatile – drawdowns amplified |
| System Sizing (horizontal) | New strategies, variations, or markets | Reduced – genuinely lower correlation | Smoother – diversification provides cushion |
| Combined (Tomas’s approach) | Both simultaneously | Managed actively | Optimal balance of growth and smoothness |
Scale horizontally first. Build the diversified foundation. Then scale vertically on top of it. That’s how you build a trading business that keeps performing through all market conditions – not just the easy ones.
Want to scale your trading portfolio intelligently – without amplifying your risk? Check out Breakout Trading PRO. It’s a structured, visual strategy builder inside BreakoutOS, powered by the proven Mr. Breakouts Formula used by thousands of traders.