When to increase contract size based on drawdown

SimpleMeLike

SimpleMeLike

Hello,

I have a system I have been trading for awhile with 3 contracts on CL. Recently I experienced 5 losses in a roll and account drop nearly $3000 in a few days. I have a 15 tick stop loss.

Part of my money rules is if my account loses $3000, I stop trading and evaluate things.

I believe the system is just going through drawdown AND I believe I am trading too many contracts for the drawdown I would like to use.

So I was thinking, what if I start with 1 contract and slowly build my account to $6000 before increasing contract size to 2 contracts. Then build to $9000 before increasing contract size to 3.

With 1 contract and 15 tick stop loss and drawdown of $3000, I can have 20 losses in a roll before hitting drawdown. And this will keep my calm while trading and able to handle any big drawdowns. Then when account get to $6000,I can go to 2 contracts. If account get back to $3000, i go back to $6000.


I belive starting with 3 contracts, i was rushing for profits, but I think I realize, I need to start small and build slowly.

What are your thoughts please? Thank you
 
YEA, I thought that once doing long term trading in 1993, thought I was good. LOL Then I had 23 losses in a row, LOL I learned whatever my back testing shows as the worst, there will be times it will become much worse, make sure you have the bankroll when it goes so wrong.

Overnight said:
... Shirley you can't be serious.
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SimpleMeLike said:
Overnight, what you mean click-bait. Of course I am serious. I would not post the question if not serious.
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Looks like I picked a bad day to quit giving trading advice!

The classic books on system trading usually discuss proper position sizing in the first 2 chapters. Many base it on the maximum observed drawdown during forward testing plus an allowance, say 20%. This allowance can also be set more rigorously if your system has high reliability.

I am not chastising. It is just very surprising. You need to have this fundamental down cold prior to implementation. Don't rely on some dude over the internet. Least of all, me.

Yes, you may want to add positions to a drawdown based on consistent recoveries. But, that doesn't change the proper sizing and capitalization requirement.
 
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That's what people who want to succeed do, compounding, if it breaks you start again from the beginning. Now some people would ask why you're using CL instead of QM which is what any sane person would do until they have proven consistent profits through various market conditions.

screen-shot-2015-05-12-at-5-46-11-pm1.png


Then it needs to be asked why you're using 15ticks, which is meaningless information without a timeframe and comes back to, why are you playing with institutional contracts when you don't understand the fundamentals of problem analysis and resolution. Luck, greed, ...
 
xandman said:
Looks like I picked a bad day to quit giving trading advice!

The classic books on system trading usually discuss proper position sizing in the first 2 chapters. Many base it on the maximum observed drawdown during forward testing plus an allowance, say 20%. This allowance can also be set more rigorously if your system has high reliability.

I am not chastising. It is just very surprising. You need to have this fundamental down cold prior to implementation. Don't rely on some dude over the internet. Least of all, me.

Yes, you may want to add positions to a drawdown based on consistent recoveries. But, that doesn't change the proper sizing and capitalization requirement.
More...

Thanks xandman,

I understand what you mean. And I understand the rule of thumb never risk more then 1% of trading capital on any trade. You may think its surprising, but its not as noticeable when dealing with a fairly small account.

I come to ET for logical and opinions compared to my own logic and opinions. Sort of like a board meeting. I may get some good advice or may share some.

My question is basically should small account traders start off with 1 contract. Until increased capital can cover trading 2 contracts. Size of the account doesn't matter if the trader understand the risk which comes from back testing and data collected.
 
birzos said:
That's what people who want to succeed do, compounding, if it breaks you start again from the beginning. Now some people would ask why you're using CL instead of QM which is what any sane person would do until they have proven consistent profits through various market conditions.

screen-shot-2015-05-12-at-5-46-11-pm1.png


Then it needs to be asked why you're using 15ticks, which is meaningless information without a timeframe and comes back to, why are you playing with institutional contracts when you don't understand the fundamentals of problem analysis and resolution. Luck, greed, ...
More...

Thank you for response.

Yes, I admit luck and greed is what I was doing trading those 3 contracts, until I hit 4 losses in a roll and was wiped out.

Like you said "That's what people who want to succeed do, compounding, if it breaks you start again from the beginning. "

I am using 15 tick stop loss and trading CL because that is what I used while backtesting my strategy.
 
SimpleMeLike said:
Thanks xandman,

I understand what you mean. And I understand the rule of thumb never risk more then 1% of trading capital on any trade. You may think its surprising, but its not as noticeable when dealing with a fairly small account.

I come to ET for logical and opinions compared to my own logic and opinions. Sort of like a board meeting. I may get some good advice or may share some.

My question is basically should small account traders start off with 1 contract. Until increased capital can cover trading 2 contracts. Size of the account doesn't matter if the trader understand the risk which comes from back testing and data collected.
More...

An account is small only in relation to the actual product being traded. In this case, yes. You are looking at a total wipe out with the modeled drawdown. I assume you are working with the most prudent calculation. If not, you will be toast.

So, going back back to your idea of adding another unit of risk (contract) beyond the initial risk-to-capital limit. Of course! Going beyond this means that when your likely drawdown is realized, your liability WILL exceed the capital in your account. You are out of the game and will probably miss out on the expected recovery as you deal with the broker's collection process.
 
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