Risk Management

Q

qtip

Hello all:

Since I have been trading, I have been trying to implement different risk strategies. I was hoping all you might be able to share their opinions.

Since I also enjoy gambling, I have tried to use it with my risk management. Please don't laugh too loud:)

IMO, trading is made up of streaks. So what I do is trade with 5 contracts on my first trade. If I win, I trade 4 contracts. If I win, I trade 3 contracts, and so on.... All the way to 0. If the 0 contract trade wins, then I wait until a loser comes up.

If I lose after the 4 contracts, then I start back at 5 contracts. What I am doing is trying to make sure I lose on the 1 contract or 0 contract trade rather than 5 contracts... I have been back testing and it seems like I might be on to something. Then again, bouncing it off others might be a better idea.

Any help would be greatly appreciated.


qtip
 
This is an interesting idea. I too believe in streaks, though they are caveats to my belief.

I don't understand what you mean by: 'If the 0 contract trade wins, then I wait until a loser comes up."

Please explain.

Thanks.

P.S. If there is a Holy Grail, it is Risk Management. I've learnt that, the VERY HARD WAY!

P.P.S. What tool/software do you use for your backtesting



Quote from qtip:

Hello all:

Since I have been trading, I have been trying to implement different risk strategies. I was hoping all you might be able to share their opinions.

Since I also enjoy gambling, I have tried to use it with my risk management. Please don't laugh too loud:)

IMO, trading is made up of streaks. So what I do is trade with 5 contracts on my first trade. If I win, I trade 4 contracts. If I win, I trade 3 contracts, and so on.... All the way to 0. If the 0 contract trade wins, then I wait until a loser comes up.

If I lose after the 4 contracts, then I start back at 5 contracts. What I am doing is trying to make sure I lose on the 1 contract or 0 contract trade rather than 5 contracts... I have been back testing and it seems like I might be on to something. Then again, bouncing it off others might be a better idea.

Any help would be greatly appreciated.


qtip
More...
 
Hello:
In my opinion, risk management is the difference between breakeven profits and real profitablilty. You have to look at your style of trading to see what you can do. For instance, I am often using a scalping technique during the slower summer months. I trade 3 times a day. My first trade is put on with small size, and I leave room to scale in if it goes my way. On the second trade I do the same, however if the first trade was a winner, I start with a bigger size going in. I am looking for a minimum move of 1 point.
If the first two trades are winners, for the third trade, I increase my position size again by 1/3 to begin, and look to scale in if I have a "runner". This way I have the opportunity to hit a big winner on size rather than with a scaled down position as you have it set up. One way to make life a little easier is to do the research. You can look at your target market to see how the streaks run. What is your longest winning streak, and your shortest. Also it is very important to look at markets seasonally, especially the E Mini. Summer price action is very different than other seasons. Hope this is of some help. Best Regards, Steve46
 
play big win big, play small win small. it all about the size of the gonads currently flapping in the wind. be tough be smart but be aggressive while not being stupid. trust yourself, no one else. be on top of all, know when the time is right to do the certain thing that voice tells you to do. dont just dust you shoulders off, break bread
 
What I meant by the O contract trade is that if 5,4,3,2,1 contract trades win. The I would go down to 0 contracts and just monitor the signal (as if i were really trading contracts on it). If 0 contract wins, then I don't trade and monitor it by watching. Once there is a loser, I would start with 5 contracts again. IMO, the more winners, the bigger chance of a loser coming up.

I use Tradestation for backtesting. But more importantly, I trade in simulated mode and then do it with real money.

Let me know if I have not been clear enough.

qtip
 
Steve46,

I really find it hard for myself to add positions or pyramiding. Especially since I trade the eminis. Pyramiding for me means the opposite of cost averaging and therefore good for a trend. The only issue is, by the time I realize the S&P are trending, it is too late.

Not to mention, I am too scared to cost average or pyramid such instruments that are so highly leveraged.


qtip
 
Quote from qtip:

What I meant by the O contract trade is that if 5,4,3,2,1 contract trades win. The I would go down to 0 contracts and just monitor the signal (as if i were really trading contracts on it). If 0 contract wins, then I don't trade and monitor it by watching. Once there is a loser, I would start with 5 contracts again. IMO, the more winners, the bigger chance of a loser coming up.

I use Tradestation for backtesting. But more importantly, I trade in simulated mode and then do it with real money.

Let me know if I have not been clear enough.

qtip
More...

Very clear!

What does your backtetsing show i.e. results with and without this streak-theory adjustments.

P.S. R u a Q-Tip fan!!
 
I don't have then numbers in front of me, but I will see I can't get them to email you. Also, I am a huge qtip and Tribe Called Quest fan. I hope that is what you mean...:)
 
Hi qtip:
For me, any small success that I have come by has been because I was willing to try things that made me uncomfortable. Scaling in was (and still is) one of those things. First, I do not scale in unless I see the potential for a continuation trade. Today for instance, it would be suicide to scale into a trade. I am looking for conditions that warrant taking that chance. Also it has to fit in with your account size and tolerance for risk. Pay attention to your body signals. If you feel your respiration increase, and your hands are shaky when you get filled, well then you are trading the wrong style, and you should be looking for a different approach to the market. Good luck, Steve46
 
Steve46,

Thanks for the advice. So do you believe in trading streaks?

I don't like pyramiding like I stated, but I am also trying to work on when to add another contract my trading method. I believe I need to find a delta and then add a contract everytime I achieve it. This way, my growth will be geometric. Of course, these aren't all my ideas. I read a book a while back but can't think of the name...
 
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