Increasing risk after a loss

[Bitstream]

Quote from ParisJOM:

See post on page 6 at 10-18-06 10:05 PM

If you "forget the last trade in regards to its P&L" your net profit will be significantly reduced unless your targets become significantly further out. [...]

ehmm, uh...pardon me but why is that.

 

[ParisJOM]

Quote from Bitstream:

ehmm, uh...pardon me but why is that.

if you lose 20 pips 5 consecutive times, you now need 100 pip JUST TO BREAK EVEN, and only if you maintain same trade size. Furthermore, if you do in fact maintain same trade size (and same stop distance), this necessarily implies that you ARE in fact increasing risk.

 

[late apex]

This equity curve "drag" is commonly known as negative effects of "asymmetrical leverage" (Ryan Jones and others).

 

[patrick_newB]

Quote from ParisJOM:

To illustrate your example, you will have to be more precise.

If you maintain costant size of trade, you are using proportionaly larger size trades after a loss. For example, 1K trade size of a 10K account = 10% trade size. After a 10% loss, account is 9K ... a 1K trade is now 11% trade size This point you have included in your example, ok, clear.

The point you did NOT include in your example is the risk% on capital. with a starting capital of 10K, after a 10% loss, the account becomes 9K. Now, what are you going to risk on the next trade ? 10% of 10K (initial capital), or 10% of 9K (remaining capital)? If you risk 10% of 9K you will most likely have equity curve drag. If you risk 10% of 10K (which was your starting capital, but now is reduced to 9K), you ARE in fact increasing risk because 1K risk on 9K remaining capital is now a real risk of 11%.

Yes exactly. There are some traders who vary trade size based on % of equity. The net effect is that they trade smaller after losses and bigger after gains. I don't do that because of the equity drag it introduces, and that was what I was trying to illustrate in the previously posted example.

When keeping nomial trade size constant after a loss or series of losses you increase your real risk as you stated. That is how I operate to avoid equity drag. So yes I do increase risk after a loss. Is that the point of this thread? To put it in perspective of the example, I would be risking 10% of 10K (starting captial) rather than 10% of 9K (current equity after the first loss).

 

[Bitstream]

Quote from ParisJOM:

if you lose 20 pips 5 consecutive times, you now need 100 pip JUST TO BREAK EVEN, and only if you maintain same trade size. Furthermore, if you do in fact maintain same trade size (and same stop distance), this necessarily implies that you ARE in fact increasing risk.

ror, that's your opinion, if u increase size u also risk to bump into a much larger loss, therefore diggin' uself into a bigger hole, lmaopimp. if u increase size when the opportunity dictates so, than it's another matter.

 

[ParisJOM]

Quote from patrick_newB:

Yes exactly. There are some traders who vary trade size based on % of equity. The net effect is that they trade smaller after losses and bigger after gains. I don't do that because of the equity drag it introduces, and that was what I was trying to illustrate in the previously posted example.

When keeping nomial trade size constant after a loss or series of losses you increase your real risk as you stated. That is how I operate to avoid equity drag. So yes I do increase risk after a loss. Is that the point of this thread? To put it in perspective of the example, I would be risking 10% of 10K (starting captial) rather than 10% of 9K (current equity after the first loss).

Ok clear, I entirely endorse that idea ... increasing "real risk" after a loss is a good strategy, we agree

Yes, this is the point of the thread as well as explaining different ways to analyse risk and how to manage it (rate of risk increase, absolute thresholds ... etc). I have seen too many people simply think of risk as stop distance for example, or think that "just risking 1% of capital on a trade" is managing risk. Just look back on this thread and you will see how often many people immediately associate risk increase with "increase of size" ... which, as I have explained, is not necessarily the case.

 

[ParisJOM]

Quote from Bitstream:

ror, that's your opinion, if u increase size u also risk to bump into a much larger loss, therefore diggin' uself into a bigger hole, lmaopimp. if u increase size when the opportunity dictates so, than it's another matter.

You have obviously not taken the time to digest the ideas posted in this thread. You can "dig yourself in a hole" just as easily, or probably easier, if you do not increase risk after a loss.

This is not my "oppinion", this is just simple math that is simple to apply and observe in any trading account.

 

[ParisJOM]

Quote from Bitstream:

ror, that's your opinion, if u increase size u also risk to bump into a much larger loss, therefore diggin' uself into a bigger hole, lmaopimp. if u increase size when the opportunity dictates so, than it's another matter.

^^ Another clown that shoots off his mouth before taking the time to read or understand.

Again, increasing risk does nor necesarily imply increasing trade size

 

[Bitstream]

Quote from ParisJOM:

^^ Another clown that shoots off his mouth before taking the time to read or understand.

Again, increasing risk does nor necesarily imply increasing trade size

yeah and u are another ladybabe noob on your way to your third blowout.

u talked about increasin' size not risk, who u think u are kiddin'. i said u increase size if the odds are in your favor not just for the sake of makin' up for the loss.

 

[ParisJOM]

Quote from Bitstream:

yeah and u are another ladybabe noob on your way to your third blowout.

u talked about increasin' size not risk, who u think u are kiddin'. i said u increase size if the odds are in your favor not just for the sake of makin' up for the loss.

Take it to the Yahoo stock boards. I'm sure you will find conversation of a more compatible intelectual level there.