Why should we reduce trade size when losing?

OddTrader · Feb 15, 2004

Logically, imo, when the (demonstrated) probability of a pullback (or oeverbought/oversold) is relatively very high, an increase of trade size would be considered, although in a losing position.

FanOfFridays · Feb 15, 2004

Quote from hoodooman:

In swing trading, I am now doing just the opposite. I take a small position in a stock and if I lose, I double my next position.

Sometimes, I have 3 losers in a row but so far, I haven't had 4. Once I have a winner, I revert back to my original trade size.

But I wouldn't try daytrading like this because my daytrading system isn't that great.
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The old Martingale system - doesn't it lead to disaster if you don't have an unlimited bankroll? Also, you must be dealing with even money bets. Beware the fat tails of the probability distribution....

mind · Feb 19, 2004

this is all just talking. build a sheet and test it out on your curve. period.

nitro · Feb 23, 2004

Steve,

I am looking into MC analysis now. I found this website as a starter:

http://unicorn.us.com/trading/prosizer.html

He also gives the competiton:

http://unicorn.us.com/trading/competition.html

Does anyone know which of these, or any other not mentioned, they have used that they really liked?

nitro

Quote from steve46:

Gentlemen:
First, "everybody" dosen't follow good money management rules. In fact, this is what separates profitable traders from retail traders (money management). I have already done my homework. To do your own, just use a Monte Carlo engine to work out a series of trades where you double up after each loss. Compare to a system where you cut back by half after each loss. The result is that the trader who cuts back is forced to quit before "ruin" (blowing out the account) occurs. This is a good thing because IF IT HAPPENS, IT MEANS YOUR EDGE ISNT THERE ANYMORE! Conversely, if you look at the returns obtained by scaling into successful positions (adding to an existing position at intervals), the positive effect on the equity curve is dramatic. A trader who is able to accomplish this can say with some authority that he has an edge (otherwise he/she wouldn't be able to add to the position). I'm just pointing a finger in a direction here. You are going to have actually do the research yourself. What I can say without any qualification is that controlled use of leverage is what separates the really profitable traders from the retail traders who fluctuate around the breakeven point, or whose accounts just slowly bleed dry. I appreciate your opinions and hope you find some benefit from mine. Best Regards, Steve46
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funky · Mar 13, 2004

I'm sorry, but without any type of statical analysis you are just spewing nonsense....

your system might have a 50% win rate, but it could have 10 winning days in a row. what i am saying here is that for you to be able to justify increasing or decreasing size depending on your equity curve, you need to prove to yourself that the statistics of it make sense. what you are saying doesn't do that.

Quote from bobcathy1:

Ok...it works this way....if your are losing it is probably a day you should not be in the market. If I lose twice in a row....I stay out until I see the next large wave...and I use a smaller position size. Prevents losing it on revenge trading.

If I win 3 times in a row, I also stay out until the next larger wave. Or decrease my position size. It reduces the overconfidence loss. Statistically you only win 50% of the time, so in 4 trades statistically you will lose the 4th trade.
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lazybones · Mar 13, 2004

The less ass you expose, the less you will lose.

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Why should we reduce trade size when losing?

OddTrader

FanOfFridays

mind

nitro

funky

lazybones