Dollar and Cents Drawdowns vs. Drawdowns in Relative Terms
When I first started out trading lot sizes that were basically equal to 1/2 equity for each leg of my entries, I thought 12% per month was not undoable given my experience using this methodology over several months in demos and lives with smaller leg sizes (1/5th times equity), which generally yielded something around 6-9% per month.
Once you actually get down to doing it with larger lot sizes (and so, inevitably, larger intratrade drawdowns), well ... there's the rub. Here's what happens psychologically when I get into larger drawdowns using these larger lot sizes: basically, I stop trading new pairs, focusing on the trades in drawdown to resolve themselves before opening new positions. This can take several days or several weeks. Naturally, as a result of this, I miss opportunities in other pairs that I could have taken while waiting.
There are good things and bad things about doing things this way: the bad is that you miss opportunities to profit in other pairs; the good is that you avoid the possibility of taking on new "dogs" that you will, in turn, have to wait to resolve themselves. How many "dogs" do you want to tolerate in your portfolio at one moment in time? I haven't discovered a precise number I'm comfortable with myself, but given the limited number of total pairs that I generally consider trading on a day-in day-out basis, it is unlikely to be more than a couple ... . (Having said that, I notice I've got at least one "big dog" in my TE right now (USD/CAD long), and a couple others that could quickly attain "dog status" in short order ... .) I do know the ideal number: 0.
The other, more important psychological phenomenon that occurs as your balance increases and you therefore increase lot sizes is concern over the actual dollar and cents size of the drawdown even though, in relative terms (i.e., the percentage of drawdown), the drawdown really isn't any bigger than usual relative to your balance. Consider the extreme example of the trader with the $1 million balance. A 1% drawdown (pretty modest by most assessments) for that particular trader would be an actual dollar and cents drawdown of $10,000. Relative terms: small drawdown. Actual terms: huge chunk of change (at least from where I'm sitting now ... ).
Adjusting to larger dollar and cents drawdowns that are nevertheless in line with previous experience in purely relative terms will take time ... .
When I first started out trading lot sizes that were basically equal to 1/2 equity for each leg of my entries, I thought 12% per month was not undoable given my experience using this methodology over several months in demos and lives with smaller leg sizes (1/5th times equity), which generally yielded something around 6-9% per month.
Once you actually get down to doing it with larger lot sizes (and so, inevitably, larger intratrade drawdowns), well ... there's the rub. Here's what happens psychologically when I get into larger drawdowns using these larger lot sizes: basically, I stop trading new pairs, focusing on the trades in drawdown to resolve themselves before opening new positions. This can take several days or several weeks. Naturally, as a result of this, I miss opportunities in other pairs that I could have taken while waiting.
There are good things and bad things about doing things this way: the bad is that you miss opportunities to profit in other pairs; the good is that you avoid the possibility of taking on new "dogs" that you will, in turn, have to wait to resolve themselves. How many "dogs" do you want to tolerate in your portfolio at one moment in time? I haven't discovered a precise number I'm comfortable with myself, but given the limited number of total pairs that I generally consider trading on a day-in day-out basis, it is unlikely to be more than a couple ... . (Having said that, I notice I've got at least one "big dog" in my TE right now (USD/CAD long), and a couple others that could quickly attain "dog status" in short order ... .) I do know the ideal number: 0.
The other, more important psychological phenomenon that occurs as your balance increases and you therefore increase lot sizes is concern over the actual dollar and cents size of the drawdown even though, in relative terms (i.e., the percentage of drawdown), the drawdown really isn't any bigger than usual relative to your balance. Consider the extreme example of the trader with the $1 million balance. A 1% drawdown (pretty modest by most assessments) for that particular trader would be an actual dollar and cents drawdown of $10,000. Relative terms: small drawdown. Actual terms: huge chunk of change (at least from where I'm sitting now ... ).
Adjusting to larger dollar and cents drawdowns that are nevertheless in line with previous experience in purely relative terms will take time ... .
Fireworks are fun ... as long as you don't blow your fingers off.