Last night I read through certain parts of "The Disciplined Trader" again. Great book, I will often re-read certain sections to take in things I may have missed. Towards the end of one of the chapters I read a line that made me curious - especially in relation to the press-your-winners ideas and the idea of streaks. Douglas seems to be saying that certain CTA firms will track their traders performance and will allocate more/remove funding to/from the traders whose recent/current (depending on time frame) equity curves' display the classic market chart patterns. This idea stuck with me and I want to get a sense of what you guys think about this: - Track your equity curve and when it displays a bull flag or a base over base (insert whatever bullish formation), really start pressing your size until patterns of exhaustion and/or reversal start occurring. Do the opposite when your equity curve is doing bearish things. I would like to believe that what Douglas says is true - that the equity curve is a traders personal psychological profile at the time, just like a bull flag in the daily is a markets psychological profile, a bullish formation in your equity curve means you are about to experience a set of strong winners. Any thoughts/experiences or is this meaningless?
I have found the exact opposite to be true for me.. press when I am losing and cut back when I am winning.. not saying thats the way for everyone.. but for me it works the best
I don't usually comment on writers or books. Your observation, however, is why I put little stock in what I read. This is so obviously someone who is more fascinated by the psychology of things than in the mechanics of trading. When I read his books, I felt like I was being lectured by a therapist. It just felt like he had little experience. I have the responsibility of deciding how much size my traders can trade. I kept detailed trade by trade sheets (called lineouts), equity curves and other stats. Usually, when a trader starts pressing and his equity goes sideways to slightly down, I cut his size to take the fear out of his trading. Once he starts ramping up again, I allow more size and push to trade a bit bigger to take advantage of his/her flow. If you go into a sideways pattern, then something is not quite there and the last thing I want to do is introduce more size (more fear) into the mix. On the other hand, it may work for others, but I like to err on the side of prudence.