Is increasing risk/size after successive trading losses good risk management or bad?

[BlacknBlue]

There isn't a point replying to danielc anymore, making up his own rules on what defines martingale. Plus no one mentioned adding to losing positions, he's putting words in peoples mouths or making more assumptions. It looks like separate unrelated trades and not averaging into a falling knife. Again I use a similar strategy myself (trading 13 years, have programming background, ran simulations on risk management systems) and see traders do similar variations and it usually works most of the time. I see traders straight up forget about progression and go up to 20Xu risk on a single trade because they know what they are doing. The loss of risk is 20Xu totally outweighs a 11.85u progression which she stated is very rare. I get it if this wont work for you man but don't make broad statements that no one else can do it, it literally isn't difficult, just pull up a daily candlestick chart and open your eyes.

Regarding your stats, I wouldn't say don't short anymore because it is a good tool when markets are red. However I wouldn't use your progression strategy and would just use your entry weightings, or ~1unit. If you are "really sure" about a short then sure go for 2u, but hold off on continued progressions.

The fact that your win rate is ~70% on positive days is a good sign. Keep an eye on market conditions to make sure you believe the market will end up positive and don't have your progression reach 5x your base unit amount.

Also another tip try to trade stocks with higher alpha, watch vwap, and watch how stocks react to good news days after release.

Ken, I agree with you that adding to winners is a good strategy for day trading, however, it works best earlier to up to mid day. I wouldn't add to winners late. Having said that Nina I woudln't start a new progression after the halfway mark. Trade light, 1-2u max after lunch.

Would love to hear your results in a few months.

 

[danielc1]

There isn't a point replying to danielc anymore, making up his own rules on what defines martingale. Plus no one mentioned adding to losing positions, he's putting words in peoples mouths or making more assumptions. It looks like separate unrelated trades and not averaging into a falling knife. Again I use a similar strategy myself (trading 13 years, have programming background, ran simulations on risk management systems) and see traders do similar variations and it usually works most of the time. I see traders straight up forget about progression and go up to 20Xu risk on a single trade because they know what they are doing. The loss of risk is 20Xu totally outweighs a 11.85u progression which she stated is very rare. I get it if this wont work for you man but don't make broad statements that no one else can do it, it literally isn't difficult, just pull up a daily candlestick chart and open your eyes.

Regarding your stats, I wouldn't say don't short anymore because it is a good tool when markets are red. However I wouldn't use your progression strategy and would just use your entry weightings, or ~1unit. If you are "really sure" about a short then sure go for 2u, but hold off on continued progressions.

The fact that your win rate is ~70% on positive days is a good sign. Keep an eye on market conditions to make sure you believe the market will end up positive and don't have your progression reach 5x your base unit amount.

Also another tip try to trade stocks with higher alpha, watch vwap, and watch how stocks react to good news days after release.

Ken, I agree with you that adding to winners is a good strategy for day trading, however, it works best earlier to up to mid day. I wouldn't add to winners late. Having said that Nina I woudln't start a new progression after the halfway mark. Trade light, 1-2u max after lunch.

Would love to hear your results in a few months.

I’m flabbergasted about what you are writing and advising to do as a trader.

Progressions of 5 x based unit with same risk calculation as a one time base unit?
Risking 20 more times your base risk on one trade, because you ‘know’ what you are doing as a trader?

before you think I’m making an assumption here, can you explain how I must understand what you are writing here? For now it looks to me that you advocate a progression programme as a martingale on steroids. Going from 1 to 5 x is more then doubling. Plus by setting a limit on 5 times, you assure the greatest loss when you lose. Any way how you explain it, you lose your biggest amount when you are losing and you win your smallest amount when you are winning with this progression. It goes against the golden rule of letting your profit run and cutting your losses and against the silver rule in trading, lose the least amount of capital in a losing streak and gain the most amount of capital in a winning streak. You can only do that with adding to your winners, not losers.

Thinking that with a 70% win ratio, it’s okay to go risking 5 times more when a number of trades goes against you, is flawed. It looks very appealing for any trader but it is a disaster waiting to happen. It is based on the flawed thinking in risk management that the outlier has a very low % of happening and there for it is acceptable in regards of the returns you get, before the outlier happens. It is also flawed because it assume that the ‘next’ trade has to be a winner based on what the previous trade did.

With making statements like be sure that you believe the market will end positive before progressions, re enforce your believe you can valid your risk management strategy on to the market because you are going to be sure that it end positive.

If all this works for you, more power to you. But I doubt you will be around for another 13 years in the traders world.

 

[virtusa]

Works great if you have unlimited capital. As @danielc1 said, this is a Martingale strategy.

If you don't have unlimited capital, most people do the opposite.

If you know your Kelly (with true positive expectancy), you could trade a steady fractional Kelly to try minimize the risk of ruin and maximize gain. If you don't have true positive expectancy, trading fractional Kelly allows you to go out of business slowly.

I would try to improve my "limited knowledge" of trading as I have no "unlimited capital".
Improve your positive expectancy first.
I would never trade a 50% winrate, as that is the real proof that you still have much room for improvement. 50% means that you are not able to do better than random entries and exits. So your trading system has no added value above randomness.

 

[NinaB]

True. Add to winners only, or as I say "feed your winners, starve your losers"

To not give back unrealized profit from first entry use slightly better than breakeven trailing stop.

I looked at my trades for last month and tested this manually. The problem is I don't know if my winners are winners until they reach their target lol? I did what you said on these tests and added to all my longs around the halfway point of my trades and most of my trades would have gotten stopped out and most of my winners would ended up as breakevens. So maybe I'm doing it wrong or maybe i'm not ready to do the add to winners strategy yet. Maybe I need to add to a winner 1/4 of the way instead of halfway? Statistically when do you add to your trades??

I’m flabbergasted about what you are writing and advising to do as a trader.

I forwarded this thread to a few friends who work in the investment field and they say you don't know what you are talking about or maybe your english isn't great but everything you are saying is not correct and you're twisting peoples words to fit your narrative so can you please stop replying to this thread - I would appreciate it. How can 5x max progression be "martingale on steroids" if i lose 3 in a row then if i do 3 more trades at 1.25,1.75,3 and then stop. it seems about 8x less risky than what martingale is defined as plus it is less risky than what I'm currently doing. I'm also not blindly progressing no matter what.

The fact that your win rate is ~70% on positive days is a good sign. Keep an eye on market conditions to make sure you believe the market will end up positive and don't have your progression reach 5x your base unit amount.

Also another tip try to trade stocks with higher alpha, watch vwap, and watch how stocks react to good news days after release.

Would love to hear your results in a few months.

Thx for the tips, everything that you mention makes sense to me and my investment friends and I did testing at the same time doing ken's advice and would have made only a bit more on my longs at most (hard to know when eye ball testing) but would have LOST LESS on my shorts but also made less on shorts - but getting those losers down helped my over % gain.

I would try to improve my "limited
I would never trade a 50% winrate, as that is the real proof that you still have much room for improvement. 50% means that you are not able to do better than random entries and exits. So your trading system has no added value above randomness.

My shorts dragged me down so more focused on longs which have better win rates now but I agree with you, I'm still learning and improving.

 

[murray t turtle]

If I'm daytrading and having a bad run I decrease size over a sequence of trades. If I'm winning I scale up.

For swings I always start small, and if the trend is strong my goal is to add, every few days. I think it's smart to only add to winners.

%%
The reasons that tends to work well includes but NOT limited too= [1] trend=friend/got the trend right [2]Most of my swing/ position losses are when the long or medium term trend changes[3-777] dividends/may not help daytraders even though Don Bright Daytrading Co daytraded some...……………………………………………………………………………………………………………...
Bought super small/spyg,[2 shares] last Friday; was not sure if spyg had a reversal week??[Actually I was surprised spyg turned up/profitable> 1% ] ;tza, sdow are up nicely for the week...……………………………………………………………………………………………………………………..

 

[KCalhoun]

I looked at my trades for last month and tested this manually. The problem is I don't know if my winners are winners until they reach their target lol? I did what you said on these tests and added to all my longs around the halfway point of my trades and most of my trades would have gotten stopped out and most of my winners would ended up as breakevens. So maybe I'm doing it wrong or maybe i'm not ready to do the add to winners strategy yet. Maybe I need to add to a winner 1/4 of the way instead of halfway? Statistically when do you add to your trades??



I forwarded this thread to a few friends who work in the investment field and they say you don't know what you are talking about or maybe your english isn't great but everything you are saying is not correct and you're twisting peoples words to fit your narrative so can you please stop replying to this thread - I would appreciate it. How can 5x max progression be "martingale on steroids" if i lose 3 in a row then if i do 3 more trades at 1.25,1.75,3 and then stop. it seems about 8x less risky than what martingale is defined as plus it is less risky than what I'm currently doing. I'm also not blindly progressing no matter what.




Thx for the tips, everything that you mention makes sense to me and my investment friends and I did testing at the same time doing ken's advice and would have made only a bit more on my longs at most (hard to know when eye ball testing) but would have LOST LESS on my shorts but also made less on shorts - but getting those losers down helped my over % gain.



My shorts dragged me down so more focused on longs which have better win rates now but I agree with you, I'm still learning and improving.

Good to know you're testing and checking your trade history.

When scaling it's critical to focus on strong trending charts eg PENN 90day had been strong. Stock selection is extremely important. I like ones priced $15-40/share with clean price action and wide ranges.

That's what I teach how to trade at www.tradingtheopen.com

 

[murray t turtle]

Good to know you're testing and checking your trade history.

When scaling it's critical to focus on strong trending charts eg PENN 90day had been strong. Stock selection is extremely important. I like ones priced $15-40/share with clean price action and wide ranges.

That's what I teach how to trade at www.tradingtheopen.com

%%
The term ''breakeven'' was invented by a Chicago coach, I think to help floor traders;
its really a loss unless you get free rent/ free power/free home/ free gas/free computer.Actually I don't like the word ''loss'' myself + prefer ''business expence; reguardless of what the IRS names it.
NO such thing as a business without losses/business exspence.
JAN Stock Traders Almanac barometer is 88% accurate. Few trade/invest with that kind of hitrate ; its not just emotions When that 88% Jan forcast failed= see what the failure was in1987, 2009.
This year looks like 2009, 2 months down huge,, bear killer + then Nasdaq did >>43% NOT a prediction, not bank insured. Paul T Jones said it looks like 1999

 

[murray t turtle]

I would try to improve my "limited knowledge" of trading as I have no "unlimited capital".
Improve your positive expectancy first.
I would never trade a 50% winrate, as that is the real proof that you still have much room for improvement. 50% means that you are not able to do better than random entries and exits. So your trading system has no added value above randomness.

%%
Good points virtUSa; I agree about 95.777 %.
But just to prove how misleading a small sample is; did real well witha 50% hit rate in real estate+ made no dividends.[out of 2 realty trades only was profitable=50%. Good thing for me I did more than 50%/ 2 traders, so hit rate was better with safe sample size.
50 %also means with slippage= auto loser, from the getgo unless gains exceed losses...…………………………………………………………………………………………………………………….

 

[ironchef]

I would never trade a 50% winrate, as that is the real proof that you still have much room for improvement. 50% means that you are not able to do better than random entries and exits. So your trading system has no added value above randomness.

After 10 years trading full time, the last 7 exclusively in options, my win rate is < 40%. You are absolutely correct, I am still a newbie, still learning, have much room for improvement.

I don't want to argue as there are probably as many winning ways as there are winning traders. I am very happy for you that you are one of the winners. I hope to learn something from you.

Peace, you have a good day and happy trading.

 

[ironchef]

But just to prove how misleading a small sample is; did real well witha 50% hit rate in real estate+ made no dividends.[out of 2 realty trades only was profitable=50%. Good thing for me I did more than 50%/ 2 traders, so hit rate was better with safe sample size.
50 %also means with slippage= auto loser, from the getgo unless gains exceed losses...…………………………………………………………………………………………………………………….

My < 40% win rate is the average over thousands of trades in the last 7 years. Of course my goal is to improve on that if I can.

The key is not win rate but expectancy.

Have a good day sir.