Increasing risk after a loss

[ParisJOM]

Quote from Bitstream:

scatface, u begun trowin' insults, not me. in your example u clearly taked about increasin' size to make up for the 5th consecutive 20pips loss. then u get criticized and make a Uturn. i say u have no clue, but that's ok...u trade fx dont u? dont worry all u fx traders are all fucked up in the head, no much u can do about it.

increasing risk can be accomplished by increasing size, but not necesarily. risk can also be increased by placing stops further our, or risk increase can even just be a result of decreased equity.

Sorry if I hurt you feelings. I didn't think that "clown" was a grave insult in any country.

"fx traders f****d up in the head" ? is that an attempt at an insult, or is there some clinical proof to back up your observation? Please let us know, it might not be too late for some of us to seek rehabilitation.

 

[Thunderdog]

Quote from ParisJOM:

...I have a simple technical method of assigning entries. In consequence, I don't try to "get better entries" (furthermore, I am of the oppinion that one would have to have some supernatural power to see the furure to get "better entries" as we don't know if our entry is good or not until after the fact).

Are you suggesting that your entry timing is at the limit of human potential, and that for anyone to do better would require that they be supernatural? Because that's what it sounds like.

 

[ParisJOM]

Quote from Thunderdog:

Are you suggesting that your entry timing is at the limit of human potential, and that for anyone to do better would require that they be supernatural? Because that's what it sounds like.

Defintely not. I was just trying to point out that "trying to get better entries" is rather idealistic with no quantifiable method.

Do you know how you are going to "get a better entry" on your next trade ?

The only way I could imagine one confiming that he/she will get "a better enry" on the next trade is to somehow see the future.

 

[ParisJOM]

Quote from Thunderdog:

Are you suggesting that your entry timing is at the limit of human potential, and that for anyone to do better would require that they be supernatural? Because that's what it sounds like.

Far from suggesting that my entries are fantastic, I would like to say that even with relatively poor entries one can do quite well if risk management is maintained inteligently. Risk management is far more important (and more realistic to atain because you can control your risk to a great extent) that trying to get a near pefect entry regularly (I can't forsee or control the market, so I don't spend too much energy on the aspect of trying to forecast)

 

[illiquid]

Definitely disagree with that one. Sure every trade and every case is different, but yes, you can learn to time your trades better. On the shorter time frames in fx, timing one's entry is just about 85% of the game.

And yes it can be done, and can be improved upon. Those that would have you believe otherwise trade their "grids", pseudo-martingales and what not -- for them the game is not unlike a roulette wheel, with as about as much expectancy.

 

[ParisJOM]

Quote from illiquid:

Definitely disagree with that one. Sure every trade and every case is different, but yes, you can learn to time your trades better. On the shorter time frames in fx, timing one's entry is just about 85% of the game.

And yes it can be done, and can be improved upon. Those that would have you believe otherwise trade their "grids", pseudo-martingales and what not -- for them the game is not unlike a roulette wheel, with as about as much expectancy.

Ok, then would you mind explaining how exactly you are going to "get a better entry" on your next trade ?

 

[illiquid]

How does any trader get better? With more experience, learning from your mistakes, etc. No one starts out profitable from the start -- you are telling me that it is impossible to improve one's entries, say a thousand trades from a trader's first trade? Do you think it's just a coincidence that those first starting out trading, in any market, have an uncanny ability to buy tops and sell bottoms?

You don't know if you can get a better entry on your next trade, but you try. If last time I went long the euro after it went up 400 pips in 3 days because of reason "X", and lost money doing so, the next time I might think reason "X" was just a tad too late a reason, so it gets thrown out. Then you move to reason "Y"; rinse and repeat. My sole purpose as a trader is to keep improving ways to find entries that are significant in the markets I trade -- I don't know how else to define what I'm doing.

Some resort to trading "small enough" in order to have enough relative reserve to keep adding to/trying out a position until it finally works -- to me, that's like making your bets at the roulette wheel as small as possible, just so you can play as long as you can. But you can't change the fact that it's still a losing game.

 

[ParisJOM]

Quote from illiquid:

How does any trader get better? With more experience, learning from your mistakes, etc. No one starts out profitable from the start -- you are telling me that it is impossible to improve one's entries, say a thousand trades from a trader's first trade? Do you think it's just a coincidence that those first starting out trading, in any market, have an uncanny ability to buy tops and sell bottoms?

You don't know if you can get a better entry on your next trade, but you try. If last time I went long the euro after it went up 400 pips in 3 days because of reason "X", and lost money doing so, the next time I might think reason "X" was just a tad too late a reason, so it gets thrown out. Then you move to reason "Y"; rinse and repeat. My sole purpose as a trader is to keep improving ways to find entries that are significant in the markets I trade -- I don't know how else to define what I'm doing.

Some resort to trading "small enough" in order to have enough relative reserve to keep adding to/trying out a position until it finally works -- to me, that's like making your bets at the roulette wheel as small as possible, just so you can play as long as you can. But you can't change the fact that it's still a losing game.

I apreciate your point, but it seems to me to be a bit off topic here.

The discussion was on the subject of enhancing performance through objective and quantifiable risk management.

"trying to be a better trader" or "trying to get a better entry" is all well, nice, and friendly advice, but it remains an idealistic statement insofar that it is vague, unquantifiable, and unless one is offering a step by step manual (other than all that BS all over the net), I don't see such statements as pertinent or enlightening.

 

[illiquid]

Quote from ParisJOM:

The discussion was on the subject of enhancing performance through objective and quantifiable risk management.

Yeah, my posts were more directed at your assumption that entries were not crucial, and that proper money management can somehow trump a poor entry. MM is a critical element of any trader's method -- however, I don't think performance of any method can be "enhanced", other than the proper use of further leverage.

Where I thought the thread was headed with your disdain for entry timing was that kind of "trade small enough, so that you can do X", X being some sort of martingale/increase of exposure when one's timing goes awry. It's almost as if you expect to get the timing wrong, or feel it's impossible to get right. Whether it's through an increase in size or a widening of stops, the point is that if you continue to work upon improving entries, you won't have to resort so much to position sizing "tricks" that are based upon factors (aka previous losses) that have nothing to do with the next trade.

 

[m4a1]

seems to me you are only considering 1 sequence of trades here. if you do a monte-carlo analysis of many sequences of trades, then the drag is not there. the compunding effect of consecutive winners negates the drag.

Quote from patrick_newB:

Let me try to add something to this thread. Acrary in one of his very insightful posts talked about "drag" that can be introduced in an equity curve by reducing trade size after losses. As a result I always keep my trade size constant until after a new equity high, when I am free to increase or decrease my size. The basic premise is that if you go for a 10% profit target and a 10% stop, and you base your trade size on your equity you can introduce "equity drag" into the equation like so: (alternating 10% losses followed by 10% wins).

10,000
9,000
9,900
8,910
9,801
8,821
9,703
8,733
9,606
8,645
9,510
8,559
9,415
8,473
9,321
8,389
9,227
8,305
9,135
8,222
9,044


By keeping trade size constant you end up with 10,000 at the end of this series instead of 9,044 - which in my book is a big difference. By keeping trade size constant you do increase your risk after a loss. I haven't found a good justification for increasing trade size after a loss but I'm comfortable keeping trade size constant after a loss or series of losses to avoid the "equity drag" phenomenon.