I hear a lot of commotion regarding size. Things like: "when I do size, the problems really start" or, "size will kill ya" or, " I was doing great till I started trading with size" Surprisingly, these comments come from some profitable traders. If you have a profitable method, why would the method change if you have an extra contract or two, or three, or whatever. The method is the same, the charts are the same, is the trader the same ?
Many times it has been said that if you buy a system, or develop one, wait until it hits a losing streak before you start using it. This certainly is an effort to recognize that methods cycle between winning and losing. I would bet that traders bump their size when they are going thru a winning streak, which just so happens to precede that next losing cycle. Now the bigger losses are being realized and the bigger profits have not yet. Then the trader cuts back on the size, realizes some small profits again, regains confidence, and bumps the size again..... just in time for the next losing streak to hit. Finally he discards the method because "it loses money", and comes to Elite Trader looking for another holy grail.!
you have to size for the inevitable bad streaks, otherwise you will go broke even if you follow the plan to the letter.
Tradersaavy: No doubt the profitable method does not change if you tack on extra contracts. I think that how one executes the method can change, however subtly, that plays a role in the outcome when size is increased, especially if dramatically. Whereas a person normally trading just 1 lot, the mental state may be relaxed and open to the information the market is presenting on the trade, when jumping to 5 or 6 lots, the trade may become almost a life-or-death situation (because that much more is at risk) and it takes on a whole different significance which affects his state and possibly blocks his perception of certain market information. So, yes, although the method is the same, the charts are the same, the trader at the helm and his/her actions/thoughts/perceptions of the trade may not be the same. Kermit
If not mistaken it was Clint Eastwood who said "A man's got to know his limitations". All kidding aside ... I think the above applies to trading. When one increases size he/she is moving into a new zone of sorts by placing more money on the line. And when that happens it can make your stomach churn a bit more with anxiety as you watch the ticks, up or down. I think one needs to find what he/she believes to be their "optimal" size, most likely in dollars per trade. To place too much money at risk in any given trade is a recipe for disaster. I've known traders who made their small profits over time and then had a major loss that wiped out lots of hard work. To have enough discipline to trade what you feel most comfortable with is easier said than done since greed plays a role for many traders ... often people make a few profitable trades and get cocky and then give a lot back when they up their size.
I think a lot of people add size too fast. They hit a point where they are making money with 2 or 3 contracts or 1000 shares or whatever, then they figure its time to "make some real money" and go to 10 contracts, 20, 3000 shares or whatever your number is. But, its like going to the gym. If you can bench 200lbs easily doesnt mean you can put up 300lbs at all. You have to build into it, and if you try 300lbs you might hurt yourself. Same in the market I think but people dont make that connection. Brandon
for edge traders where they only trade on one given chart, size equates with money management and risk. They use R/R ratios and probably targts too. The analysis here in this thread so far is mostly about feelings and how the person is affected. The money side shows that for a given edge, if you increase contracts, you must either change the downside risk (stop placement) and/or adjust the target to keep the management in tact. This means tighter stops when you add contracts to keep management in tact. Too bad. So, more often, it comes down to getting a different edge because of getting stopped out early and repeatedly and losing the edge as a consequence. Most traders do not really have a viable choice about increasing contracts it turns out. By reading the posts here you can see who knows this and who doesn't. It also shows that people usually haven't gone through the experience either. I really had to work through this as part of finding out what to do about keeping myself profitable while continuing to grow. In another tread tri pak tried to find out some considerations from acrary. The questions related to this topic in a strong but indirect way. One answer was made and it turned out that the answer shows that size can't be changed using a collection of edges either. You only use one edge at time and the tighter stops again screw it up.