I kind of disagree with this idea. Unfortunately in trading there is a Murphy's law which states something along the lines of "The market will do what is least expected" In real life this means, the trades you have most confidence in will turn out to be duds and those you think are duds outperform. I've been trading for many moons and I can assure you of this, the markets leap all over the place and one moment 'x' is flavor of the week, thens it's 'y's turn. When you are selling a position thats when it begins a run up, when you buy it then runs down. One of the main reasons my trading makes bank for me is because like a few hardy souls on ET, we sit on positions for some days, weeks, months or sometimes years. Longer term gives more certainty. But initially when I place a trade with conviction, it goes against me, even after years of trading, getting my timing perfect just never seems to work out. So getting back to the crux of my suggestion, diversification is sometimes better over a larger number of positions than a small number of large positions.
Well the advice he's following is from the Soros/Druckenmiller school. You might disagree with it, but it is as valid as any other. Probably best to track whether those high conviction trades are really high probability trades while trading normal size. If you find you really do have a nose for conviction trades then you will in time easily be able to size up because you'll have the confidence of knowing your own prior performance.
%% Good points Quiet1. BUT you also have to remember + its a matter of pubic info/profit info; ''it takes courage to be a pig-Mr Drukenmiller''. NOT all have the courage or the good /long work/skill habits of Stanley Drukenmiller But that has to be balanced with the fact, he admitted he blew his account up also, about a 7 million /100% loss if i remember; trading to big, can work if you're young - maybe enough time to redo an account blow up LOL Another advantage he had == a boss that liked charts- considered a kook LOL Another advantage of blowing up an account when you 're young; you may have enough time to do it right?? Part of it depends on market; harder to blow up an account in cash marketRing 4et, i would rather do fewer trades+ more research/ less comissions.
The problem with any trade you take on is that PA can change in subtle ways after you entered. Sure, when you start noticing being solidly in the red, you can clearly see the difference. But in the beginning, it may look like any other pullback though just continuing, invalidating your previous entry. If this happens with a "high probability entry" and you loaded up on it, small movements may be devastating. Suddenly you've overtraded and need to save your position or take a huge loss, but can be tough to find a good exit. This can even turn a positive expectancy system into a loser! Traders shouldn't jeapordize their stake, but always keep some powder dry in order to find more opportunities. There are limits to how small will be meaningful to trade, and also how big the largest positions should be. Deciding this is an important plan of the trading plan and risk management.
Reading all the comments it becomes very clear the OP doesn't understand the basic concepts. They want to use a logarithmic curve to profits, the sure fire way to implode. A high probability trade does not mean increasing size, it means preserving capital and reducing effort for the same return, an exponential curve. It's always amazing how people extrapolate what they want to hear, the pot of gold at the end of the rainbow. Anyone can make something look complex, it takes a true genius to make it look simple.
@birzos assuming you are increasing size along these lines, does it alter the expectancy of your system ? Or is the expectancy calculated the same way ? Thanks After additional thought...I guess the larger lots (trades) are just included like any other since expectancy is measuring the entire system..I think. please add any comments along these lines.
Totally agree. As well, trading is something which morphs as you go along, like murcury in the palm of your hand. Currently I'm holding 19 different positions on one trading account, 13 positions on another account and 3 positions on a 3rd trading account. A month ago I didn't know this outcome, it evolves as each day goes by, I see opportuniy windows opening and closing daily and take appropriate action always attempting to engage near 100% of my accounts to be working within the limits of what the market allows at the time. However as birzos so wisely says, its about PRESERVING CAPITAL. A trader needs to be in to win - there is no material profit for an audience but, guard your positions like an eagle with its chicks. A single large position is riskier than several positions having the same $ outlay. If the eagle has only one chick and loses it then it's in trouble, but if she has several chicks and loses one, not so bad. Insurance always costs money, just like holding numerous positions, more effort required but it pays off in high risk endevours such as trading. As for fear, you need balls to trade, this game is not for wussies, but needs to be done with intelligence, not recklessness
Going big on a let's say 90% probability trade and making 10k is better than making $100 on 100 lower probability trades. Because the more often you enter and exit the market the more risk you take on in terms of slippage, execution errors etc. The more selective the better.