Same size for every trade

  • Thread starter Thread starter lukas
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lukas

Here is another controversial question for you:

If you admit each trade has the same probability of success, then is it reasonable to always use the same (maximum) size for every trade?

However, if you also use a daily stop-out, is it reasonable to build up a "cushion" trading smaller size first and then use bigger size? This approach might mean you somehow know the chances of making a successful trade before you take it which is not rational, or is it not? However, with a daily stop limit, this is a justified risk management.

I'd be happy to know your thoughts - maybe you could make a good point which I might be missing at the moment.
 
lukas said:
If you admit each trade has the same probability of success, then is it reasonable to always use the same (maximum) size for every trade?
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Not for me, because that's not how I manage my risk-exposure.

If I "admit" that each trade has the same probability of success (and always the same sized success, did you mean?), then for me it's reasonable to take the same risk on each trade, and that means that my position-sizes will essentially be different each time, because the stop-loss requirement for each trade is individual, depending on the current volatility, position of the most recently-formed swing-high/low, etc.


lukas said:
However, if you also use a daily stop-out, is it reasonable to build up a "cushion" trading smaller size first and then use bigger size?
More...


Again, not for me. It makes no sense (to me) to allow the position-size or risk-exposure of a trade to be determined by the outcome(s) of the previous trade(s). Either I have my edge or I don't: if I don't, I shouldn't be trading at all; if I do, I should be trading each time with appropriate risk-management parameters, which are proportional to the expectancy and not determined by previous/recent outcomes.

These are issues we each decide for ourselves (or possibly our risk manager does so, which boils down to the same thing for practical purposes). In my view, the approach we each take depends ultimately on whether we're essentially profit-oriented or risk-oriented. I know which side of that fence I'm on (and that many are on the other side of it).
 
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If you admit each trade has the same probability of success, then is it reasonable to always use the same (maximum) size for every trade?
More...

And what do YOU think that probability of success is?
 
In those rare events like big panics at bear bottoms where a base is forming I am going to take a few shots at layering into a position with more size and more risk, up to 2% of my capital - anymore could be the road to ruin. I will use smaller size probes in attempts to get a profit buffer before starting to layer in since whipsaw high volatility conditions at bottoms are good at rinsing most people out. This is something I allow myself to do up to twice a year max. It is something I am experienced with and trust that I will follow my rules based trading plan. These often have 1,000 or more basis point reactions, the reward potential justifies taking on more risk for me.
 
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This is kind of an iffy question for me, because there are pros/cons of each scenario,

Some situations may look or seem more favorable then others to bet large -- But then again you are always Still gambling. and you are heavily exposed,

Generally speaking, I say you should always bet the same,

Assuming... you have the skill/talent and/or a good system in place...then everything will take care of itself, o_O
...you don't need to do no risky deviation that can leave your account's performance in a questionable state,

Instead of having to feel the need to bet large in more appealing situations...you should focus on your overall trading talent/skill or system,

You only need one match to start a forest fire;
you don't need to dump gallons and gallons of gasoline everywhere or in various spots,...only to potentially leave yourself trapped,
 
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qxr1011 said:
choose the size of the position and stick with it
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Regardless of the size of the stop-loss? That's clearly a risk-change. For myself, I trade with constant initial risk, which requires changing the position-size to suit the stop-loss.

I'll be honest: I'm slightly surprised to see you apparently disagreeing with this perspective, qxr1011. o_O
 
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