What is your average drawdown for winners?
- Thread starter indahook
- Start date
Unless I'm into a clear break out I'll scale into every position. Most of the time I'll go in with 25% of my planned size. I'll wait until that position either pans out to break even or a break out before I move in with another 50% then 25%. Commis is a little more but if the position goes against me and gets stopped out the loss in much smaller .... exactly 75% smaller. Run some numbers on your trades and factor that in and you'll be amazed. Also, I use OCO and other conditional orders to handle exactly what I've just describe. It's very easy if your platform is capable. It's like having your our trading clerk. No babysitting.
Going all-in/all-out leads to big drawdowns and a jacked up equity curve. No one is right all the time ... ever. So testing the water with 25% is wize. When you're right you'll feel good and when you're wrong and get taken out you'll feel good. That may sound strange but when one of my 25% trolls gets taken out I feel like I'm thumbing my nose at the market because "they" didn't "get" me. What I've described above is as close to position entry money management holy grail as it get yet few seem to do it. Most love to be all-in thinking they'll make more during the moves ... not taking the larger losses into account which nulify large chunks of your successful all-in trades.
Food for thought.
Trade well.
Probably one of the best posts I've seen here in a while. Another way to achieve the same goal that Frank talks about, if daytrading, is to start with a full position first and then peel off contracts if not proven right, instead of waiting for the mkt to prove one wrong (hit your hard stop).
But whether its scaling in and taking a smaller loss on a first unit, or scaling out if not proven right, you are moving towards the goal of being smaller in size when you are wrong, and larger when you are right.
The above seems to be very uncomfortable to practice, but surely what is comfortable in trading rarely ever works.
Thanks for the fantastic reply BMF!
Maverick, I agree 100%.
Even though i`m enjoying success it cannot hurt to sit down and try to tweak my position sizing model for further profit potential. Right now I calculate stop and position size at 1% of equity...and exit at 3x initial estimated risk. It works well for me because of the vehicles I trade. 99% of my trades are Q`s and SPY. So very little overnight risk greater than .25-.50 bps or so. Also at a rough 50% hit rate a 1-3 RR has put me in a temporary comfort zone. Time to take another look....
Good trading to you all and thanks for the replies.
Maverick, I agree 100%.
Even though i`m enjoying success it cannot hurt to sit down and try to tweak my position sizing model for further profit potential. Right now I calculate stop and position size at 1% of equity...and exit at 3x initial estimated risk. It works well for me because of the vehicles I trade. 99% of my trades are Q`s and SPY. So very little overnight risk greater than .25-.50 bps or so. Also at a rough 50% hit rate a 1-3 RR has put me in a temporary comfort zone. Time to take another look....
Good trading to you all and thanks for the replies.
That's pretty much how I was when I first became profitable and truthfully most people would be happy. Once I started scaling in my trading went to the next level ... a more mature and more profitable level. It's probably more difficult and require more patience for you to start being that you're most of a swing trader but think of it this way ... an extra 5 - 10% per month or year isn't gonna kill you.
Also, for further refinement ... while 1% of equity risk and 1/3 is a very sound RR, I'll offer the following;
Don't get rigid on the x3. If the chart still good let your remain scale run till the tires fall off. As far as the 1% risk ... let the nearest support or resistance level help you determine risk as well. Sometimes, say on a buy, the closest support is 2% away. Now that doesn't line up with your 1% trading plan so you're putting undo stress on your bankroll, cutting down the odds of a successful trade or maybe getting wiggled out before the trade is green. In such a case you have 3 choices. 1. Scale in with the 25% as we talked about thus keeping you in the trade longer with tempting the 1% or @ 25% you have 4x longer to see if you were right
. 2. Trade only half of the position size you had planned at factor the 2% instead of 1% ... 2% being equal to the next support. or 3. Wait until the gap between the support level and your 1% trading rule closes. Made sense?Trade Well.
Once again BMF. Thanks for the fantastic reply and sharing with us. It is something to consider...even though its only an extra 5-10%...
I`m going to try and work in a scaling method eventually. It will be hard. But if my testing shows it to be fruitful, i`ll add it to my repertoire. I think the hard part will be determining whats static and whats real???
Scenario 1 ..initial entry with.25% of total position
I go long Q`s @ 38.5 and they promptly sell off .20%..my avg drawdown on winners is .12%..but certainly not the largest DD I have incurred before they move back in my direction. Now there are two things for me to do 1 - sit tight until stopped or 2 - sell and wait until they reach my initial entry point. This can cause majors whipsaws in a trendless period. But will the premature exit from stop level make up for a few whipsaws??? Maybe.
Scenario 2 ...initial entry with.25% of total position
Long Q`s 38.50. stop below some support level at 37.89(-.61) for exp. tgt @ 40.33(+1.83). After I go long they promptly run. Shall I start adding when i`m breakeven from initial stop or more aggressively???
These are all ideas to backtest, forward test and trade. Good times....
I know i`m a horrible position babysitter thats why setting the rigid 1-3 is working for me. Ever see the commercial for the "showtime rotisserie cooker"? "SET IT ...AND FORGET IT".
I`m going to try and work in a scaling method eventually. It will be hard. But if my testing shows it to be fruitful, i`ll add it to my repertoire. I think the hard part will be determining whats static and whats real???
Scenario 1 ..initial entry with.25% of total position
I go long Q`s @ 38.5 and they promptly sell off .20%..my avg drawdown on winners is .12%..but certainly not the largest DD I have incurred before they move back in my direction. Now there are two things for me to do 1 - sit tight until stopped or 2 - sell and wait until they reach my initial entry point. This can cause majors whipsaws in a trendless period. But will the premature exit from stop level make up for a few whipsaws??? Maybe.
Scenario 2 ...initial entry with.25% of total position
Long Q`s 38.50. stop below some support level at 37.89(-.61) for exp. tgt @ 40.33(+1.83). After I go long they promptly run. Shall I start adding when i`m breakeven from initial stop or more aggressively???
These are all ideas to backtest, forward test and trade. Good times....
I know i`m a horrible position babysitter thats why setting the rigid 1-3 is working for me. Ever see the commercial for the "showtime rotisserie cooker"? "SET IT ...AND FORGET IT".