Trading Size

[Bfbusa]

Here is something that has been rolling around in my head for some time.

We always hear that we should always trade a size ( number of contracts) that we feel comfortable with. Which really translates into how much are we willing to lose on a given trade, so we keep trading and we keep losing because we a comfortable.

Think to yourself, if you had twice or three times your normal size, I bet you would be darn well sure that the setup you take is the highest probability in your arsenal. You may find yourself not over trading and being alot more disciplined. (Of course you must have a solid trading plan and good setups first.)

Crazy, I know, it flies in the face of what we are taught to do as Traders.

So think about it for a second.

And Let The Debate Begin.

[brownsfan019]

Interesting post bf. Good points. Assuming you are confident enough to trade your methodology w/o hesitation, there is a strong argument to trade larger that's for sure. Now, here are the 'assumptions':

• You know your system makes money.
• You have tested, tested and tested just to make sure your analysis is correct.
• You can execute w/o hesitation.
• You can leave the emotions out of this. Probably the hardest one if you increase your size.
• And lastly - you are 100% confident in your system!!!

Assuming all of that, I could agree with increasing size to bring your focus in even more and increase your returns quicker as well. More money is always a good thing.

I would also add to the mix - if you can operate under these conditions, there's really no need to keep much extra cash in your account. Since futures brokers don't pay interest on cash (unless you put in T-bills), the argument here could be to keep that excess cash in something more liquid that pays you something.

[dalby]

also, emotions aside (which are a big reason not to increase size), even a cursory understanding of game theory/probability shows that larger size EXPONENTIALLY increases risk of ruin.

iow (it depends on expectancy of your methodology but generally speaking), doubling your size can result in FAR more than a doubling of the risk of ruin.

i look at it this way. size is something you EARN. just cause you have a 100k account does not mean you should trade 50 dow contracts

[walterw]

Volume should not change your feelings... you have to be equally responsable and commited if you trade 1 or 50 contracts, if the correct actitude, trading more contracts is just a matter of money management... feels the same like when you started with 1 contract.... you need a decent aproach, clear and easy.... plus discipline and optimism, specially when you get stoped, have a good RRR embeded on your aproach, the rest is story... no matter how many contracts.... on my experience, trading more contracts was obviously a sintom that my trading aproach was correct, giving me more confidence on my career... but it did not make me dissy or less responsable.... cheers Walter.

[BlowFish]

The point is you should be pulling the trigger to get in and get out almost without thinking. The more you have on the line the less likely you are to be able to do this. Whether your base unit it is one lot or one hundred lots you should folow the system in the exact same way if you do not you should probably stop until you figure out why not.

Think of the largest drawdown you have had recently. It is quite likely to be 5 or maybe more losers in a row (depending on what sort of % winners : %losers your aproach has). If that string of losers produced 3 times the drawdown how would you feel? Confident and ready to pull the trigger unemotionaly on the next trade?

I recently opened a spread bet account (essentialy allowes you to bet on the underlying market) this allows me to bet $1 a tic essentialy. Funily enough I still make the same emotional errors (closing way too soon) even though the amount is fairly negligible. I know this perhaps lends wieght to your argument However I think the real problem is my fear is of being wrong rather than loosing cash!

Try the oposite bet small size on a low value instrument until you can get in and out without any emotional pangs at all!

And as was said before really know and understand the risk of ruin. I always am surprised how likely it is even with a reasonably positive system if you use too great a size.

Its a risky gambit - literally!!

Cheers,
Nick.

[momentom]

I used to trade the whole session.

Then I did the statistics and found a pattern when I had the best trades. It was really clear. Now I trade ONLY during those windows. And I trade 5 times the size doing fewer trades.

[BlowFish]

Momentum sounds like you have found a trade that has a much higher chance of winning and so increased size acordingly. I wonder how much you put at risk on each trade is that 5 times as much?

If you can get up above 65% even towards 70% the risk of ruin starts to drop fast. That one of the reasons I would perconaly prefer a 70% method that uses a 1:1 RR.

The OP is saying (if I read it right) that if he trades larger size he will find higher percentage trades. You have found a higher percentage trade and so are trading larger. There is a subtle (and imho important ) difference.

Cheers,
Nick.

[momentom]

I cannot trade successfully unless I have a high percentage win rate - more than 80%. I am unsuited to any other way of trading. The only way I can then earn enough is to trade size on "sure" setups. Each time you trade, you take on risk. So I only risk when the odds are surely strongly in my favour. So I maximise my earning by trading confidently on those "sure" setups. Works for me but may not work for you.

[BlowFish]

Momentom thats a far far more comfortable way of trading imho also. It must be very hard to use 'traditional' trend following methods (the turtles method springs to mind). I believe that though profitable (in large due to fairly aggresively adding contracts to winning trades) it had somethin close to 70% losing trades. Sounds like you would not have made a very good turtle I am pretty sure I woud have strugled.

As an aside the youngest (and apparently most succesful of the turtles) has written a book. Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders. I hear its a good read if you like acounts of traders and trading (rather than looking for some 'secret' trading method).

Of course "whatever works for you" is the sound bite of the day. If you do try Bfbusa it would be interesting to hear how you got on. Just be careful out there .

Having got the cliche paragraph out the way, might I ask Momentom roughly what your risk reward ratio tends to pan out at?

Cheers.

[cooter]

If you always wanted to know why 95% of futures traders are losers....overtrading and oversizing.

Since we are all humans, psychology plays into how we act and react too good and bad trades alike.

When you reach your daily trading goal, stop trading. The markets will be around the next business day to do it again.

Bad trades can temp you to increase your position to "catch up". Don't do it. Stay the course. If you get 3 or more losers in a row on the same trading day, stop.

Simple enough, but it'll keep you in the game with a level head long enough to actually make some $$$ after awhile.