Good points!I only add once,and if it doesnt work out i just scratch out or exit on closure.
Increasing Size During Drawdown
- Thread starter oldtime
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Good points!I only add once,and if it doesnt work out i just scratch out or exit on closure.
well, more what I was talking about, you have a system which has worked well in the past that uses constant size
then it goes through a period where it is wrong so consistently that it becomes comical
is it a good idea to increase size since you are confident wins and losses will return to a more nomal distribution?
asking mathmaticans more than anecdotal traders
and conversely, would it be wise to reduce size when it goes through one of those "just can't miss" phases?
then it goes through a period where it is wrong so consistently that it becomes comical
is it a good idea to increase size since you are confident wins and losses will return to a more nomal distribution?
asking mathmaticans more than anecdotal traders
and conversely, would it be wise to reduce size when it goes through one of those "just can't miss" phases?
honestly van tharp when I was a newby sounded like the missing key to my trading.
Now his stuff reminds me more of a Carney than an asset to trading.
YMMV
No, that assumption isn't automatically correct. The trading criteria is broken in your example in that the successful trades only match a particular market condition. If you go from consistent winners to consistent losers under the same criteria, it means that you don't really have an edge. You just coincidentally found yourself using criteria that matched the prevailing conditions at the time.
Think of it like this. You have a relative who loses a bunch of money after the dot com crash. He decides he can pick stocks better than his adviser. He transfers his money in mid 2003 and begins to pick his own stocks. From then until about Oct 2007 he has a success rate of 85%. It seems like every time he buys something he is right. Then suddenly almost every trade he makes for the rest of 2007 is a loser.
He tells himself, my picks have been so consistently wrong that it is comical. I know my criteria is right because it worked so well before. Therefore, I am now going to increase my size because my system has a proven win rate of 85%, so it has to return to there soon. By the end of 2008 he has almost blown up his account.
His actual mistake was in assuming that a high win rate was the same thing as having an edge. In reality all he had was a high beta strategy that happened to coincide with a bull market. He would've realized this if he'd properly analyzed his system, but he just assumed that it was his genius at the root of his success.
A string of losses DOES NOT increase the likelihood that the next trade will be a winner. A string of losses simply indicates that your system does not fit current conditions. It says nothing about whether those conditions will persist.
I would ask, why do you only add once? I'm not suggesting that it is wrong to only add once. I'm just wondering, what is the basis for that rule?
They way you are throwing it out there sounds like it was just some arbitrary rule that you came up with to limit losses. As opposed to an actual calculated trade that increases the positive expectancy of the system.
It isn't baffling at all from a statistical viewpoint. If the sample size is large enough, the frequency of 50 heads in a row is precisely predictable. Also, the fact that there were 50 heads in a row does not in any way make a tails more likely on the next toss, or the next 10 tosses. That is the gambler's fallacy. If you don't get that out of your head, your trading career is going to be rough.
As much as you seem to want to assume that a bettor should switch to betting tails after a string of 50 heads, that change doesn't impact his odds of winning at all.
