Lets say a daytrader is already making consistent profits but he is having difficulty increasing his size to reach higher levels of profits. Perhaps the bigger positions induce him to mismanage traders due fear or loss or he has an internal resistance to increasing size unless he is sure the trade will be a winner. If you have done this sucessfuly, what is the advice that you would give it to him?
I had this problem. What I did: my initial size was 900 shares. Then I add to position if winning - 2x, 3x, 4x 900 shares etc. One day I decided to increase my initial pisition by 200 shares a week if I finish week with good result. When another week is also good then size again increased by 200 shares. I stop increasing whenever I don't feel good with my new initial size. When emotion has no influence on my trading then I again increase my initial shares. This way from 900 shares (and adding to 1800, 2700, 3600 etc.) I changed it to 2000 shares (and adding to 4000, 6000, 8000 etc) in few months with aim to increase it to 5000 shares as initial position (but of course mamy times it depends on level 2 , spread etc - happen that I can open less shares. But it is important to me to have no fear to play bigger size). I get used to trading the same number of shares for years. I was hard to change it - the reason was the same like your. I am stable and profitable for years so why to change that.
I don't know if it's helpful (to others, I mean: I can't judge this because I've always looked at it this way) but thinking of it as "percentages" and "numbers" is much better than thinking of it as "money", while you're actually trading, in my opinion. A single-lot/contract trade doesn't feel any different to me from a five-lot/contract trade. I think that a 50-lot trade wouldn't, either. I think I look at trading as a business in which the commodity dealt in just happens to be money directly, rather than "something worth money". I'm sure there are trading psychology books that might help (Van Tharp's later books? Dr Brett Steenbarger's books?), but for me, that's what it boils down to, anyway. I've just gradually increased my position-sizing over the years as my account has gradually grown (depending, of course, on how much I withdraw from it as I go), but to me it's always been numbers and percentages dealt with statistically and in abstract, and it's only been money at the end of the month or at whatever intervals I appraise it that way.
I agree with this viewpoint -- infact, I believe this is a huge one...that every trader needs to overcome. When you think of the game of trading as just Percentages and Numbers...it frees your mind to focus on the mechanics, logistics and other variables of the trade.... ...it's when you start getting emotional about the Money behind it...that's when it starts to F up your game. ...when you start thinking....Damn, that was a steak dinner...or a Rolex watch...or a Porsche...that's when you need to recollect yourself. and get back to the ...love of the game...of scoring Points -- not money and material possessions.
The words you use like "mismanage...due to fear" or "internal resistance" is more about psychology but you said a few times a very long time ago you don't believe in trade psychology. Regardless, the advice is simple. Increase the position size slowly. Pretend you're trading 3 contracts and its your current comfortable psychologically level even though your risk management rules and available capital shows you can go as high as 15 contracts. Yet, 15 contracts scares you (that fear factor). You can go slowly for a few months from 3 to 4. Then increase again from 4 to 5 and trade that for a few months. Assuming you're still profitable, increase again from 5 to 6 and trade that for a few months. The only reason why I say trade a new position size for a few months is because the human mind really needs to be reprogram to accept that new level and such usually takes a few months at each new level to get use to...minimizing that fear or minimizing that internal resistance as you called it. Here's the best part. Pretend it takes you about 3 years to reach that 15 contract position size level that you can psychological trade comfortable without violating any risk management rules or position size rules...you're not required to keep trading at that level. Simply, the markets are not the same every day nor every time you trade. Thus, if the markets are making you nervous for whatever reason due to something like a global economic event...trade small. Another example, pretend you're using a new trade approach or you're trading something new...trade small until you reach that comfort level that allows you to trade again at your psychological threshold of 15 contracts. P.S. The key not discussed about is the profit level. Only increase if you're profitable. Thus, lower your position size if you've hit some kind of a drawdown. P.S.S. There are mathematical models out there to help determine your position size but they do not consider the psychology of the trader...that fear level that can impact how a trader manages the trade.
Once you start trading for a living, as a sole source of income to pay all expenses/cost of living, and with no savings to fall back on, those abstract percentages will become very concrete due to the nature of reality for non-wealthy people. Last Monday I lost an entire month's worth of money I hoped to withdraw from the account to pay for groceries and utilities for next month, in just two bad trades. Then Tuesday morning I went to the bathroom, where I heard sounds from my trading program and rushed back into the room, in a few minutes I had lost money I planned on using for next month's car payment and auto insurance. I'm in a gambler's dilemma, with May's money allocated for bills lost, I must risk June's expense money to try to earn back May's lost expense money, so I can continue trading for a living. If I lose June's money trying to get back May's money I'll always pull from July's money..but soon I'll end up broke due to the chaotic nature of the markets, commissions, and other expenses. I have concluded that no one should try "trading for a living" unless they have money to pay for their living expenses for months-years in advance.
A key element that makes it difficult to size up is that in order to do it, you need confidence but with the current market structure (HFT dominated thin markets) when you feel confident about something, usually a lot of other people will do it as well. As a result there will be a short-term 'crowding' of that play. Usually, this will lead to more short-term adverse moves against you. You will be tested more than usual. In fact, if the crowding factor is big enough, the whole play might just blow in your face. This tend to happen exactly when you have that larger size and is unlikely to be able to withstand those tests. This is not to say that the confidence was unwarranted. It might have been, its just that it might take a while for the stock/market to filter out those weaker hands until it finally goes that the proper direction Ironically, I'm finding that increasing size when you don't feel comfortable is probably superior to doing it when you feel it
You have a long post history but I have a good memory of the conversation that occurred in a TA thread and I have a poor memory of specific links. Yet, it was one of the last few conversations we had prior to now. Regardless, you got a very simple advice about the psychology of trading involving increasing position size even though this thread is posted in career trader. I hope the advice works for you and I think its worth trying. Just go slow...one contract at a time.
That's possible for some but not for others but I only say that due to what I've learned so far in Behavior Finance. The human mind is just wired the wrong way when it comes to making financial decisions or trade decisions. Yet, for yourself, if you have stats that shows that you will have superior results if you increase your position size when you don't feel comfortable...that's something worthwhile exploring. The question is now a little more deeper. How do you convince yourself to increase your position size while the other part of your brain is not confident about the situation when your trade analysis is complete and you're ready to take a position ? If you already know that answer...slowly increase your size via the invert of the same process I mentioned...the more you don't feel comfortable...slowly increase your position size. I'm the opposite in how my brain is wired, I only increase my risk (more contracts) when I feel confident in my analysis of the global markets and the trade itself. In fact, the more I'm not comfortable...I'm less likely to trade. P.S. The term "crowding" is something I'm not use to seeing discussed in psychology talks. It is a first for me. In contrast, I see it used by those in their discussions with me that are involved with hedge funds or quantitative strategy talks.