Increasing Size During Drawdown

[hard kore]

Quote from oldtime:

Anybody ever fool around with increasing size after a drawdown, or for that matter decreasing size after unusual profitability.....

u do.

 

[oldtime]

Quote from hard kore:

u do.

2012 was a good year for me in forex

and a part of it was adding to winners and adding to losers

but when I look back at the charts, I just happened to guess right on the big trends

Jan 2013 was very rough

In Feb I got flat

since then I have been all over the place

I've really lost my way

for one thing, my positions were getting so large I was having a hard time sleeping without stops

so I'm back to what worked for me in 2012

I just don't like to be static when the market is changing

 

[ammo]

Quote from Epic:

I should clarify my statement also. The word 'Martingale' gets thrown around as a title for any type of scaling system. That is horribly inaccurate.

Martingale is a very specific betting system in which bet size is doubled with each loss. The idea relies on an unlimited bankroll. It really has nothing to do with scaling or cost averaging. It is, by definition, a revenge trading system and a surefire way to blow up an account. Here's why...

Nobody truly has an unlimited bankroll. The beginning bet size must then be small enough to allow for > 25 bets. This would give you a strong statistical confidence that a blow-up event wouldn't happen in your lifetime (six sigma event)

If you construct the betting system in that manner, you'll be making roughly 0.1% annually. This is actually very intuitive, because you are trading a system that now essentially carries almost no statistical risk. One would expect to realize an even lower return than short term treasuries if the bet actually carries less risk than the treasuries.

Let's assume that this is just unacceptable, and you at least want to be getting 3% annual. Your bet size must increase roughly 30X. Now you are in 4.8 sigma territory. There is now a slight blowup risk sometime during your lifetime.

Now let's assume you want something more like 10% annual. This would require 100X initial bet size, taking you into roughly 4 sigma territory and blowup frequency jumps to about every 30 years on average. So you now have a pretty good chance of blowing up.

20-30% annual target brings you into a realm where a blowup during a normal lifespan is very probable. A 50% target makes blowup a virtual certainty. All of this is very intuitive.

In the end, a martingale system is a losing system. A scaling system is much different, and is a method of averaging the cost basis of the investment in recognition that you cannot pick absolute bottoms with regularity. Scaling systems frequently include no bet size increase, or at least very limited increase. Losses are not exponential as in the case of the martingale.

In reality, scaling is simply a method of giving up some potential return for the ability to trade at greater frequency and slightly higher probability of profit.

in the current economic scenario,martingaling to the long side has a higher risk than to the downside, chance of an overnite 60 point rally are lower than a 6o pt drop

 

[Swan Noir]

As Epic has pointed out the biggest problem with Martingale is that your size needs to start so small that your returns are meager. If you add in the medicine you will require to control your blood pressure during the deep draw downs close to non-existent.

Scaling into a trade is one thing but Martingale is not a real trading plan.

 

[oldtime]

Quote from Swan Noir:

As Epic has pointed out the biggest problem with Martingale is that your size needs to start so small that your returns are meager. If you add in the medicine you will require to control your blood pressure during the deep draw downs close to non-existent.

Scaling into a trade is one thing but Martingale is not a real trading plan.

yes, I am well aware of that. It's a real bitch if you finally guess right at just the exact right time and all you have on is your starting position.

naw man, I play around with size

Lightening up on losers, adding to winners, adding to losers

but I am always spread

some of it is probably just psycho

the most damaging thing to my mind was getting whipsawed

first long, then short

this allows me to stay on the same side for a long time

but you are correct

you need to guess the proper size to start with

there's probably a formula there

I'm comfortable starting about 50% margin committed

but I have a long history of getting stopped out

so I can take a loss at a moments notice

and not really feel all that bad about it

taking profits is the one that gets you

I just try to do everything backwards from a dumbass trader

they don't worry about their losses and always think it will turn

fine, then I just won't worry about my profits

at the end of the year, we'll see who came out ahead

 

[Swan Noir]

My comment was specifically about Martingale and I'm not sure you get the gist of it. You never win more than your starting bet will give you. The doubling process means that at the point you have 8x your original stake on the line you have already lost 7x.

Quote from oldtime:

yes, I am well aware of that. It's a real bitch if you finally guess right at just the exact right time and all you have on is your starting position.

 

[Epic]

Quote from Swan Noir:

My comment was specifically about Martingale and I'm not sure you get the gist of it. You never win more than your starting bet will give you. The doubling process means that at the point you have 8x your original stake on the line you have already lost 7x.

Yes, the very definition of a Martingale is that each bet will only recover carried losses, plus the amount of the original bet. So each bet has an exponentially worse risk profile.

By step 10 you are risking $1023 to make $1 with a 50:50 probability.

 

[oldtime]

yes, I get the gist of it
one time my company sent me to Lake Tahoe as a bonus
I told them I couldn't afford to go'
they insisted
we had to find a baby sitters
my old 76 VW sqaureback fuel pump kept cutting out going up any hill
I left home with $50 in my pocket
started at the roulette table with just $1 and kept doubling up
largest bet was $32
meals, entertainment, 3 days later, went home with $50 in my pocket.

 

[oraclewizard77]

Assuming you still believe in the direction of your trade, I was able to do the following with real money, but it would have been better to get into a good setup in the 1st place.

In futures, I placed a direction trade which went against me. After it went against me to the next pivot level I entered in another contract, which I took out at BE. The trade went against me again, and I repeated allowing me to achieve a better price without getting stopped out. The problem with this trade, is the Risk vs Reward becomes bad if you are not able to get out at BE.

Quote from oldtime:

Anybody ever fool around with increasing size after a drawdown, or for that matter decreasing size after unusual profitability.

The reason I ask is because I go through periods where I get stopped out so often and consistently that I think nobody can be this wrong for so long.

And sometimes everything is profitable and I think, enjoy it now because this can't last.

Increasing size after bad luck sort of has that Martingale feel to it which ususally means it works until you under estimate just how bad your luck can actually be.

 

[daniel33]

Lot of misconceptions about increasing size during drawdowns.

Adding to an unrealized losing position and "Martingaling" can be very different money management systems.

For instance, the add in Martingale is approximately twice the previous total, but when adding to a losing position you could use the same previous size, less or more or even choose to skip and do nothing.

Obviously Martingale has no limits, when the capital is gone, that's it, a choice many choose not to take (and rightly so) when adding to a loser.