Quote from BeingProfitable:
It is impossible to know when a system is just in a bad drawdown period or if it is going to fail completely. All we can do is make a plan to allow the system to have a fighting chance to make a comeback without hitting critical drawdown (blow out). Once it hits that critical drawdown it is all over.
Here is an example. Say we have a system where the estimated max drawdown is 25 points of xyz future contract. Then say I want the critical drawdown to be 50 points. When the system hits 25 points it starts to scale down slowing the possible rate of loss all the way to 50 points. Once the system hits 50 points it is terminated. Now if I traded 1 contract per 100 points of profit, then my total loss would be 50%. These parameters can be played around with to match risk tolerance. An aggressive system might try to scale up every 25 points of profit + margin, a conservative one would do 75 points plus margin locking in 25 point per contract of profit.
Quote from N is a personal preferenceana Trader:
These are all none-sense. You only should reinvest your
profits if you are sure that you consistently will be profitable
in future.
Suppose you reinvest continues for 4 years, and then on
5th year have bad result, you are fucked up.
Stick to fix account size, and remove the profit to the bank.
Quote from BeingProfitable:
Most of the famous traders who hit is big time used very aggressive pyramids to scale in fast and grow their accounts exponentially. Granted, it is risky for most, but it worked wonders for some.
Quote from Nana Trader:
Have you asked yourself what % of traders go busted
using this technique?
They know traders usually like to hear the sweet stories
only, and rest will be covered.