Call me Chicken!

Linda has some ideas about regaining a level of comfort with setups. If you are uncomfortable it's likely that you've been taking the wrong ones. Trade good setups on paper and only good setups... like buying the breakout and selling the breakdowns on paper until you are sure of the results. It could take time.

~EC
 
What I do is cut my position size down to a level where I can tell myself that if I loose a trade it is really no big deal. For instance, if I'm trading $10,000 positions I will cut them down to $2000. Then I say to myself "no big deal, I could have four losses in a row and still loose less then a single large trade. If the trades are successeful, then I'll make a litle money. If I loose a trade, well, no biggie, que sera". As I am profitable (if I am profitable) I will gradually increase my size. I always pay attention to my trading fears. They may just be "all in my head" but there is also the chance that they are reasonable fears, that they are trying to tell me something.
 
Several posts have mentioned position size as a factor in this issue, so perhaps I might jump in with my own problem.

I am a short-term position trader (hours to days) who has been quite successful over the last couple of years. In fact I have been sufficiently successful that the size of my required bets now gets to me.

I am quite comfortable taking positions up to about $12,000, but the size of my account is now such that I should be making $20,000 or higher trades. Don't laugh guys, I am just very risk averse. But if I do it messes with my mind and I find myself snatching at profits rather than relaxing and letting the trade play itself out.

As I cannot focus on more than 5 or 6 open trades, the consequence is that because I am trading smaller positions than I should my account is underutilised most of the time. This is doing wonders for my percentage drawdown number, but is not helping grow the bottom line.

Any advise on how I might train my mind to accept the bigger $ risk. I know it is all about percentages, but I have a hard time convincing my subconcious of that.
 
It seems to me the problem pulling the trigger is the fear of loss. However, if you have a predefined stop loss for the trade (which one should always have for any trade), then you know in your head that the worst that can happen is you lose that amount. Knowing that ahead of time makes my trades much less emotional and more a matter of technicality (at least for me), and I know going into each trade what the worst case scenario is and am prepared for it.
 
this has nothing to do with trading systems or size. it sounds like he has all that worked out, but just got cold feet. this happened to me (and still does) most when I was first learning.

the point is that it is irrational behavior, and like most psychoses can be worked out.

read trading in the zone by mark douglas (not the kiev book). he spends alot of time talking about this problem and how to rationalize it away.

have fun
ken
 
Dufferdon,

I think Rigel has a good point. Your head is telling you something important and you ignore it at your peril. Trade the size you are comfortable with, not the size you think your account equity warrants. Put the excess in t-bills.

From what I've read, there is plenty of room for disagreement about optimal risk exposure. Nothing wrong with being on the safe side.
 
Originally posted by dufferdon

Any advise on how I might train my mind to accept the bigger $ risk. I know it is all about percentages, but I have a hard time convincing my subconcious of that.
More...

Sounds to me like you're doing very well. If you there is something in either your system or position size that you instinctively don't like or trust you will make erratic and irrational decisions in real-time. That is always expensive.

Why don't you just increase your base size by $1000 per month. That way you will slowly get used to trading bigger if that's what you want. As your confidence in yourself and your system grows over time it will feel natural to put on bigger or more positions.

Good book: Trading in the Zone by Mark Douglas. Addresses many of your concerns/questions
 
well i just want to say many thanks to all of you for your input, and a really big thanks to Tony oz for spending some time with me on the phone the other nite. I think it is a combination of two thing, first i thought i was comfortable with my size but given my circumstances i was taking on too much size with the type of an acct i had. And one other factor was the possibility of missing trades, i just couldn't believe how much the naz ran up and since i missed the larger part of the move, i didnt want to get left behind when this thing pulls back, so i was setting up nice plays but i guess given the fact that this mkt ran up so much and it took me by a surprise i was almost paralyzed because i was affraid of another surprise. So i just sat there and did nothing. Oh well live and learn, and drop down the size when i'm not comfortable with it. I have to make a few chages and then go at it again. So once again many thanks for the great advice guys. :cool:
 
Hi Dufferdon,

I can understand your problem with positionsizing very well. In theory, there are are numerous ways to utilize a trading account by the optimum level without risking more than what you consider as your risk-tolerance. However, many of these strategies are sometimes really pure theory and not applicable in real-life trading or only with very large accounts ( mutual funds i.e. ).

I had the same problem and based on Van Tharps Book, I developped a positionsize algorithm, which depends on the underlying's volatility and takes trading capital and risk-tolerance into account. It even helps on scale in and out strategies.

It means, that you can determine your commitment to a trade in advance and you can react flexible enough to changes in volatility by altering your positionsize accordingly.

Sure, this "system " is maybe not so sophisticated like some "Monte Carlo" models or money-management tools used by fund-managers, but for me as trader, it takes the guesswork out and let's me focus on the trade-management.

Since the values resulting from this algorithm can vary considerably during a trade ( depening on the underlyings volatility ) it is, at least for me, a very good and practicable risk and money-managment tool.

I must admit, I use this system not for intradaytrading but for multiday trades. Nevertheless, it should be possible to apply the algorithm on RT data as well as on weekly or daily data.

Here's a simplified version of this algorithm, which I use in all my MetaStock or Amibroker explorations together with the desired tradingsystem.

This is only the positionsize part of it, of course.

((10000)*2/100)/(ema(CLOSE,5)+ (ema(ATR(1),10)/4)-(ema(CLOSE,5)-(ema(ATR(1),10)*1.50)));

Since I posted my system at a site for collection of AB tradingsystems, I used arbitrary figures for accountsize ( 10000 USD ) and risk-tolerance ( 2/100 ). These values have to be customized by each trader, of course

Depending on a traders style, he might also alter the ATR lookback period from 10 periods to shorter or longer time frames.
The stop-loss is calculated with 1.5 times ATR of the ema of ATR 10 periods. I found this stop level to be sufficient for the type of stocks I trade and the type of signals I take ( which are not fare away from the lows of reversals of strong stocks - which I trade most of the time ).

A complete explanation incl. Amibroker exploration formula of my system can be found here.
The exploration looks for simple MACD and Stochastics signals and applyies the MM system. MACD and STO can be replaced by other tradingsystem of your choice.

http://www.amibroker.com/library/formula.php?id=123

In essence, this algorithm allows you to take large positions in low volatile stocks and smaller positions in highly volatile issues, applying a 2% risk-level + a logical stop-loss level, based on volatility.

Be advised, that this system can and will return odd-lot positionsizes , depending on your account size. If, i.e. a the result is 99 shares - than I take 100, if it says 153 shares, I'd take 150 and so on. I always try to take the next round number ( in 10ths not 100rds. )

Hope this helped a bit.
 
You must log in or register to reply here.
Back
Top