Increasing bet size depending on PnL

Discussion in 'Risk Management' started by lukas, Dec 7, 2018.

  1. lukas

    lukas

    What method of increasing bet size depending on the realised PnL would you suggest?

    For instance, assuming your starting risk per trade is $150, after PnL reaches 4 x basic risk per trade (i.e. $600), in next trade you can risk half of the PnL i.e. $300. Then, as long as PnL stays above $600, you always risk 50% of the realised PnL. So, if PnL is $1,000 you risk $500 and so on.

    Does it make sense?
     
    murray t turtle likes this.
  2. Palindrome

    Palindrome

    When I started, I risked $400/trade, based on 30k of capital.

    Once my account grew to 60k of capital, I started risking $800/trade.

    When the account grew to 120k of capital, $1600 at risk per trade... and so on.
     
  3. lukas

    lukas

    I agree with your point. However, what I had in mind was to apply this technique intraday, apart from increasing the basic/starting risk when the account balance reaches certain thresholds. This way you can have some really big winning days if you also use a rule to stop trading after a certain number of trades. It just exploits the luck element of having several winners in a row.
     
  4. The mathematically optimal bet size can be determined by the Kelly ratio:
    = win% - (1-win%)/(average winner/average loser)

    Can also be approximated by average return per trade / standard deviation of trade returns

    Trading at the optimal kelly ratio will maximise the growth of your account. If you go over it you will end up with less money, or blow up your account. I would calculate this number before I started risking .50 of your PnL as in above example!

    Using aggressive compounding on realised PnL is a good way of building your size, providing you can psychologically handle the swings.
     
    Simples and fordewind like this.
  5. %%
    It could make sense, Lukas in that many buy @50% off sale.And many bought GE @$30 ,50% off $60 .BUT i would not risk 50% of any profits on GE; nor would i buy it unless its to close out a short.LOL

    And ignore CNBC nonsense like {GE }CEO buying 2 million @ $9.72. However even if that was the 10 year bottom , briefly ,, its was not the 10 year bottom. But GE was good downtrend, went much better than 50%.A lot of it depends on the market. When a swing/position trade gaps against you some,it could make more sense to risk more than 50% of profits.............................

    Fidelity ContraFund manager said part of his wins were........... not buying GE.LOL + true.:cool::cool: