[macdfx]

Originally Posted by Kiwi »

This is one of those funny arguments.

Both sides are right.

But


The problem with trading is that it isn't just one problem. And the ones that come from within after one has a working strategy are much harder to deal with than the one of finding a working strategy.

So, yes, in theory risk 1% per day on one trade with an expectancy of 35% and you're on you just scale up ... so easy ... but so so hard.

My argument would be"why scale up" in the first place?

[Dinerotrader]

Originally Posted by macdfx »

My argument would be"why scale up" in the first place?

IMO,

Because the goal is always to make as much money as possible with the least amount of work. Scaling up requires no more work but makes you significantly more money if done correctly.

[sevensa]

Originally Posted by The Pip Thief »

Hello Sevensa,

No worries! I would be glad too do that for you.

Ed Seykota-
He is best known for making over 250,000% in less than 20 years not counting withdrawals. Those are absolutely staggering numbers by any stand point. Quote was taken from “Definitive Guide to Position Sizing” by Dr. Van Tharp.

"First, I'd like to acknowledge Ed Seykota who first taught me the importance of position sizing, saying that success was 60% psychology, 30% position sizing, and 10% systems. Ed was also the person who taught me the value of using the market's money." – Dr. Van Tharp

Now Dr. Van Tharp has studied the profile of over 5,000 successful traders and has come to the conclusion that the # 1 determining factor in ones trading success is how they implement % Risk Position Size Models into their trading plan.

What it comes down to is that this system is not nearly as important as people think when they come into the trading business. It’s all about how you are sized and control your risk per trade.

By the way, Van Tharp invented the word "Position Sizing" after studying all these top traders.


Larry Williams-
He is an all-time great trader and educator. The statement below says it all.

"I'm probably best known for winning the Robbins World Cup Trading Championship, turning $10,000 into $1,100,000.00 in 12 months. That was real money, real trades, and real time performance. For years people have asked for my trades to figure out how I did it. I gladly oblige them, they will learn little there - what created the gargantuan gain was not great trading ability nearly as much as the very aggressive form of money management I used. The approach was to buy more contracts when I had more equity in my account, cut back when I had less. That's what made the cool million smackers - not some great trading skill." - Larry Williams

Anyone that makes turns 10 grand into 1.1 in a year has specialized knowledge that most traders do not know. He leads to the definition but does not give the exact diagram. After more study of this great trader he admits he uses % Risk Position Size Model. His secret is the money management and not the system, these top traders set themselves apart through this approach.

Michael Marcus-
Over a ten year period he multiplied his company account by an incredible 2,500%
Michael turned $30,000 into 80 million in less than 10 years.

All of these traders and others if you want me to quote some more give credit to % Risk Model of Position Sizing to be the number on factor in their success.

I mean you have to ask yourself. Pretty much every trader out there has access to the same buy and sell systems. How the hell are a couple of these traders turning 30,000 into 80 million in less than 10 years or 10,000 into a over a 1.1 million in a year. This is what I wanted to know and I found it. It is the % Risk Model of Position Sizing. I mean there are times when I have taken a trade of 1% risk and then made 10% in an hour. Then I started to understand.

The % Risk Model is the best! It lets you scale in or out and also lets you play with the markets money. What do you do when you are day trading and make 10% in an hour. Me, I risk 3% on the next trade and if I lose I quit for the day. If I win, and normally I would have won 3% when risking 1%, by risking 3% I now won 9%. This is what I have learned from these guys who multiply their money at these alarming rates.

Hope this helps. Check out the pic if you think you cannot with 10% in an hour by only risking 1%.

The Pip Thief

While I fully agree that position sizing is important, your references above just mentioned that the traders attribute position sizing to their success. Not specifically % Risk Model of Position Sizing and what you present is hardly proof.

Ryan Jones claims in his book that fixed ratio is the best. I'm sure some successful traders use his model. Does this prove that his is the best?

As I said, I agree position sizing is important, but I don't think you can claim one method is proven to be the best without actual proof. Maybe it is and I would love to see prove for that. A couple of random traders saying it is so, however is not prove.

I can show you 100's of pictures that vendors use to show how great their systems are. Posting a picture in hindsight to support your arguement, unfortunately is not prove either.

[macdfx]

Originally Posted by Dinerotrader »

IMO,

Because the goal is always to make as much money as possible with the least amount of work. Scaling up requires no more work but makes you significantly more money if done correctly.

True, but it requires much more "emotional" capital, IMHO. And that's what keeps most of us from trading at the next level successfully.

Hence the push to automate our edge and remove the subjective human component if possible. Easy to say, but much, much harder to do.

[The Pip Thief]

Originally Posted by macdfx »

My argument would be"why scale up" in the first place?

To clarify. My definition of scaling up is adding to a trade that you are already in. I guess I was not clear. Although I have done this it scares me too much even if I am using proper or sound rules. Just my personality. I should have said that PositionSizer makes it very easy to do by not breaking some of the cardinal rules of scaling, even so I get too scared. And yes. WHY? 10% in a short time is great!

What I do much much more is play with the markets money. That is what I find to be really beneficial. The definition of this to win a big trade and then risk a little more on the second. Like if you win 10% ( which rarely happens I might add) then I risk 3% on my next trade. If I hit for 6% then I risk 2 on the next trade. This is what I call Playing with the Markets Money and % Risk Models make this easy.

One last clarification, I do not only risk 1% per day but per trade. And I would not consider this an argument but a discussion and there are no rights or wrongs!

The Pip Thief

[BlowFish]

Ed Sekoyta on Risk worth a read.

Pip Thief, Interesting you mention Williams and the Robbins World Cup. Didn't he have a close to 70% draw down in the competition? An abject lesson in how not to manage risk. To win competitions you need to throw risk management (and caution) to the wind. Maximum leverage in the most volatile instrument you can find is the position sizing rule for competitions.

[The Pip Thief]

Originally Posted by BlowFish »

Ed Sekoyta on Risk Risk worth a read.

Pip Thief, Interesting you mention Williams and the Robbins World Cup. Didn't he have a close to 70% draw down in the competition? An abject lesson in how not to manage risk. To win competitions you need to throw risk management (and caution) to the wind. Maximum leverage in the most volatile instrument you can find is the position sizing rule for competitions.

You have to know what you want to do. That is my whole point. % Risk Model allow you to go into competitions or trade conservatively, use scaling or not, play with the markets money or be conservative. Reduce risk or increase risk.

Larry Williams was already a very huge investor when he threw 10 grand into the account to try and win this competition. Fixed Ratio is very complex but that is just my tiny little brain that has a hard time applying it.

The Pip Thief

[The Pip Thief]

Originally Posted by sevensa »

While I fully agree that position sizing is important, your references above just mentioned that the traders attribute position sizing to their success. Not specifically % Risk Model of Position Sizing and what you present is hardly proof.

Ryan Jones claims in his book that fixed ratio is the best. I'm sure some successful traders use his model. Does this prove that his is the best?

As I said, I agree position sizing is important, but I don't think you can claim one method is proven to be the best without actual proof. Maybe it is and I would love to see prove for that. A couple of random traders saying it is so, however is not prove.

I can show you 100's of pictures that vendors use to show how great their systems are. Posting a picture in hindsight to support your arguement, unfortunately is not prove either.

I do not know? Van Tharp is the Grand Father of PositionSizing through inheritance of Seykota. He profiled over 5000 and then proved the MATH in his book "Definitive Guide to Position Sizing" that % Risk Model is the most statistically viable via the samples he puts forth in the book. We could argue this for hours but I guess I choose % risk because it is way easier as well.

As to hindsite. That is kind of funny because we are not looking for points of entry in time but how to size market moves. They are completely not correlated in this sense. Take that same move with a one lot position or with a stop of 30 pips. What does that give you for a ROI in this trade?

You are missing the point! Again there are no rights or wrongs here so I am just giving you my standpoint as to what I think is best for a simple mine like mine.

The Pip Thief