Increasing Size During Drawdown

[Ferdinand]

I agree this is a bad idea. This is what I think happens when people do this.

You get a great “win rate,” and can have 90% or more of your trades be winners. You can look back and see 10 - 12 trades in a row where you made X. But then there is just that one loser where you lost 20X.

This is because the WAY you are getting all those wins is based on an approach that guarantees when you do lose, the loss will be huge. In my opinion this is EASY to do, and very, very flawed. IMO it will NEVER work. (Consistently, over time.)

Now consider the inverse. You take lots of small losses before getting that rare, but large winner. This is much harder. But it can actually work.

There is a reason there are so many cliches like "Cut your losses, let your winners run."

They're true.

 

[Johno1]

I agree this is a bad idea. This is what I think happens when people do this.

You get a great “win rate,” and can have 90% or more of your trades be winners. You can look back and see 10 - 12 trades in a row where you made X. But then there is just that one loser where you lost 20X.

This is because the WAY you are getting all those wins is based on an approach that guarantees when you do lose, the loss will be huge. In my opinion this is EASY to do, and very, very flawed. IMO it will NEVER work. (Consistently, over time.)

Now consider the inverse. You take lots of small losses before getting that rare, but large winner. This is much harder. But it can actually work.

There is a reason there are so many cliches like "Cut your losses, let your winners run."

They're true.

As with everything it all depends on how you do something. If your plan dictates that you begin entering a part of your position as soon as the market moves into a specific zone and to then continue loading up the further it moves into the range, this should leave you with the best scenario possible. A trade on, the best average entry, with your whole position on only when you expect the trade to work out. It goes without saying that you are going to suffer a drawdown, just be certain that you know where the market is showing you that you are wrong, that is the point to exit not some $ value. As traders we get paid for taking on risk, therefore risk is to be managed not avoided, generally no risk no payday.

Cheers John

 

[Ferdinand]

I think of that more as an exception to the rule. At least there is a huge difference between planning to accumulate in a range vs buying because you think it's going to go up, but it goes down, then you decide to buy more.

 

[generalpirate]

I agree that we should decrease the lot size when we are losing and increase the lot size when wnning. The problem that I find is that when you lose 6 or 7 times straight you need to win 6 or 7 times straight to break even if you use the 1% decrease anytime you lose and the 1% increase when you win. Example:
1000$X1%=10$
990$X1%=9.90
981$X1%=9.81
971$X1%=9,71
961$X1%=9.61
951$X1%=9.51
so you guys can see this account was started with a thousand dollars and we applied the concept of 1% risk in every position and we had 6 straight loss. If we apply the adding of 1% if the market turns around in our favor we need 6 straight wins to come back and break even . I think this way will be very difficult to come back to breaking even applying this math. I think the market turns around we have to add more than that 1% to come back to break even and be profitable.

 

[Johno1]

I agree that we should decrease the lot size when we are losing and increase the lot size when wnning. The problem that I find is that when you lose 6 or 7 times straight you need to win 6 or 7 times straight to break even if you use the 1% decrease anytime you lose and the 1% increase when you win. Example:
1000$X1%=10$
990$X1%=9.90
981$X1%=9.81
971$X1%=9,71
961$X1%=9.61
951$X1%=9.51
so you guys can see this account was started with a thousand dollars and we applied the concept of 1% risk in every position and we had 6 straight loss. If we apply the adding of 1% if the market turns around in our favor we need 6 straight wins to come back and break even . I think this way will be very difficult to come back to breaking even applying this math. I think the market turns around we have to add more than that 1% to come back to break even and be profitable.

General, you have agreed with two opposite views in the same post. The real issue is expectancy. If you have earned 6-7 losers in a row yet your long term average is 2 winners out of 3 trades it would be crazy to reduce size. As for waiting for a turn before increasing size, if we knew where the turns were we would only take those trades so there would be no losers, unless of course we were gamblers or masochists.
Cheers John

 

[murray t turtle]

Why should I read a book by a guy with a Ph.D. in psychology who is suspected he has never traded?

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Mr Tharp is a worth while read.

Answwer;Other side of the coin, why listen to some that lost money,in of all thing, a number of CA propertys???? Mike Marcus+ he tells you the reason why he lost[TOP Trader books-Jack Schwager] Hope this helps, it helped me.