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At what point would you increase your stake size?

  • #21
  • May 17, 2011 2:03pm May 17, 2011 2:03pm
Quoting bullish84
In my logs you will see the most Ive drawn down from my account is somewhere around 20% and it was down between 10-20% for a couple of weeks and I worked it back up, stayed with my plan and I am now where I am now. As you can see in my logs

Thats also the reason I dont like to increase my leverage, I feel that I will...
well, your logs are a good beginning, but they just show two months of trading activity. Markets do change over time, so it is a question if your strat is robust enough to be able to handle other market situations, or if it can avoid unfavorable market conditions.

And what happens then, when markets change. Will the drawdown still be only 20% or will it get much higher? What will you do if you are 60% down? Those drawdown questions are really important. Cause sooner or later you will experience a major one, except if your strat really is extremely robust. Also a higher account with money that actually means something to you will make your emotions go crazy in the beginning, except you are really emotionally balanced.

Just pointing out the dangers of going in with too much in the beginning. You might not be able to stick to the plan, once really a lot of money is on the line / lost in a major drawdown.
  • #22
  • May 17, 2011 2:16pm May 17, 2011 2:16pm
Quoting Custos
well, your logs are a good beginning, but they just show two months of trading activity. Markets do change over time, so it is a question if your strat is robust enough to be able to handle other market situations, or if it can avoid unfavorable market conditions.

And what happens then, when markets change. Will the drawdown still be only 20% or will it get much higher? What will you do if you are 60% down? Those drawdown questions are really important. Cause sooner or later you will experience a major one, except if your strat really is extremely...

good observations custo, I suppose the only way to find out if my strat works in different market environments is to test it out for longer. I only started with the minimum for the reason to test it out on a live feed with real $ for obvious reasons, you pick one.

Question is how long is a sufficient time period to keep testing?

the $ I intend to put in will be a respectable some, but not enough to make me freak, im happy to say that I am extremely even keeled and have blown out 5k and 10k accounts, expereience is on my side at least in the pysch category.
  • #23
  • May 17, 2011 2:24pm May 17, 2011 2:24pm
as mentioned earlier, my strat consists mainly of swing trading divergences in the direction of momentum (counter trend) or trend. As well I use S&R for profit/stop zones and breakouts

It seems to work well in range environments and better in trending...take a look, theres always a divergence in every market, at all TF whether it be often or not
  • #24
  • May 17, 2011 2:26pm May 17, 2011 2:26pm
Quoting bullish84
good observations custo, I suppose the only way to find out if my strat works in different market environments is to test it out for longer. I only started with the minimum for the reason to test it out on a live feed with real $ for obvious reasons, you pick one.

Question is how long is a sufficient time period to keep testing?

the $ I intend to put in will be a respectable some, but not enough to make me freak, im happy to say that I am extremely even keeled and have blown out 5k and 10k accounts, expereience is on my side at least in the pysch...
If you can trust your strat, then you can go in with big money.
  • #25
  • May 17, 2011 2:27pm May 17, 2011 2:27pm
check out aud/usd since last friday the 13th...its been in a range mode and ive had plenty of trades (divergence trades) since then to make profts
  • #26
  • May 17, 2011 2:28pm May 17, 2011 2:28pm
Quoting bullish84
check out aud/usd since last friday the 13th...its been in a range mode and ive had plenty of trades (divergence trades) since then to make profts
on the 1hr TF
  • #27
  • May 17, 2011 2:57pm May 17, 2011 2:57pm
Quoting bullish84
check out aud/usd since last friday the 13th...its been in a range mode and ive had plenty of trades (divergence trades) since then to make profts
looks good to me.
I think time will tell if your strat works out in the long-term.
  • #28
  • May 17, 2011 4:09pm May 17, 2011 4:09pm
I don't know whether or not this will help, but here's my limited experience.

I couldn't make money trading demo accounts because I couldn't make the money real to me. I wouldn't get up, I took losses and said "who cares?", and basically did a crappy job with the expected results.

Then I stuck $500 into a mini account, and lost that pretty quickly, adding another $300 and losing most of that. I opened another brokerage account (for some free offer...don't chase those, go with a major broker) and lost another three hundred out of five, before finally taking that money and going back to my original choice for a broker who had better spreads (the spreads weren't beating me, I was). At first, I used EA's, profitable on backtesting, profitable on one week of forward testing, but money losers in two weeks of forward testing with a live mini account. Tried systems, moving averages, fibs, etc.

The only thing that seemed to work for me (and that is a relative term) is when I moved back to the original broker, I accidentally entered the first trade as a micro instead of a mini. When I noticed that, I started to close the trade and redo it, but decided, since it was going against me, to allow a larger stop than usual (20-30 pips) of eighty pips. My first profitable trade. I've since been down a hundred and up sixty five, but always right around my original $800. I've grown comfortable enough to start trading two micros on each of the seven majors and one micro on gold. I'm not winning, but I'm not losing much, and most days I'm ahead of the $800.

I plan to increase my stake to three micros when I get to $1200, four at $1600, and five at $2000. I'll wait, I think, until I get to $5000 to raise it to a mini, and $50,000 for trading single contracts. This is, of course, considering I'm trading up to eight positions at a time. For me, it's a mental thing, watching the money come in is nice, but making yourself realize those $4.00 profits will soon be $400 or even $4000 profits makes it a little easier. It sure is hard watching those $10 and $20 losers, though, so that's why I came down from 2 minis on gold.
  • #29
  • May 17, 2011 4:36pm May 17, 2011 4:36pm
Quoting bullish84
So I would like to ask some of the more experienced and relatively successful traders in here a question...At what point would you increase your stake size (if possible) if youve shown yourself a 43% return in 2 months on your initial investment?
To remain on point, you increase your position size, not as a factor of ROI, but as a factory of accuracy over X time interval and to a specified target.

Think about what you are saying and run the premise to its logical conclusion. The emotional answer to increase position merely due to an increase in ROI. Whereas, the logical (non emotional) answer to to increase based on the overall performance of the trading system or methodology that makes the ROI possible.

The foundation for all Money Management questions (whether MM Model or MM Strategy) is always: How's my system performing dynamically with respect to X period of time? That is the only question that should determine whether or not an increase in size is warranted.

You could be up 43% over X months. But, what happens if you increased sizing based on that reasoning and then went 43% down over a similar period of time. You could be up 43% with a system performance accuracy rating of 93%. Or, you could be up 43% with a system performance accuracy rating of 63%. It all depends on the location of your Limit Order - how big are your trades. Lower system accuracy performance on big Limit Order targets, might net you the same 43% ROI, but it will be founded upon weaker internal performance of the very thing that drives your profits.

On the other hand, you could have trades with smaller Limit Order targets coupled to a higher system accuracy performance rating and yet again, still be able to produce an ROI of 63%. However, in this scenario, that 63% is founded upon a more solid underlying causality - better overall system performance.

So, you've demonstrated that you know how to calculate an ROI, but have you also calculated your System Accuracy Performance Rating to a Specified Target? That's the big question. It is not just "accuracy," but accuracy to a "specific target per trade." That's a much more detailed question and it will take some analysis of your trade history to understand properly.

Why is this important?

Because, risk in trading can be defined as: Accuracy to a Specified Target.

One of of the biggest delusions among independent traders, is to only define risk in terms of Cost Basis per Trade. That's a huge mistake. How well your system or methodology is doing at striking specified targets, is a very significant component of risk evaluation. Who care that you only risk "1% of total equity," when your system/methodology can't strike a specified target more than 17% of the time.

However, for someone who can strike their specified targets 93% to 97% of the time, using a 50% Cost Basis per Trade, might not present any more realized risk than the 1% trader, and their account will be growing geometrically in absolute dollar value terms.

So, accuracy to a specified target per trade, is a very important metric about your trading that you should have memorized verbatim. You should know that number better than you know your own birth date.

Other performance numbers that you need to be deeply intimate with are:

 

  1. MAE - Maximum Adverse Excursion (gross negative-loss per trade)
  2. MFE - Maximum Favorable Excursion (gross positive-gain per trade)
  3. RPG - Realized Positive Net-Gain per Trade (Limit or Exist level)
  4. RPL - Realized Negative Net-Loss per Trade (Stop level)


Then you can start doing performance delta analysis on the relationships between these values. This will give you deep insight into how your trades are truly performing before the get realized on your P/L statement.

Trading is both a business AND a science for those seeking to optimize their performance overall.

  • #30
  • May 17, 2011 4:38pm May 17, 2011 4:38pm
I wouldn't say two and a half months is long enough to guarantee your system is bulletproof.

Also depends on what your trading style is. If you are only trading one pair then you can increase your risk easier than if you are following 15 pairs.

Personally if I was you I would carry on as you are for 12 months then review the situation.
  • #31
  • May 17, 2011 4:48pm May 17, 2011 4:48pm
Quoting Custos
Well, just increase your stakes with each profit made. I wouldn't invest more capital. If you really can pull off such returns, you gonna be a millionair in no time. After 2 years you gonna have 5 million $, if you start with a 1000$ account and have a consistent 43% return on a monthly basis.
Here we go again, utter rubish based on simple maths and stupid stats that mean nothing at all in real life . Get real.
  • #32
  • May 17, 2011 5:01pm May 17, 2011 5:01pm
Well said, Jag and Jet. Extrapolation is the deathknell. No "system" works over all time frames, just change your optimization to small chunks, watch the numbers change. Forward testing only works for those days you were testing, not for anything in the future. Keep it simple, keep your losses small, watch the ratio's (I try to look for 20-30 pips and take half the position off, the other half at 60-80, depending upon fib, trendline, s/r, etc. But when you're doing the math of "5% a week means, ah, doubling every ..." you're done. It's just woolgathering now. It won't be the same at a mini as it was at a micro, and it won't be the same at a full contract as it was at a mini. Just plug away, hope the account gets bigger, trade a bigger lot size a little at a time to let your mind get used to the bigger losses.
  • #33
  • May 17, 2011 5:19pm May 17, 2011 5:19pm
Quoting jag1966
Here we go again, utter rubish based on simple maths and stupid stats that mean nothing at all in real life . Get real.
Ouch!!! Let's be civil and fair, their intentions were in the right place. Remember all opinions in this website have to be taken at face value
  • #34
  • May 17, 2011 7:04pm May 17, 2011 7:04pm
Quoting bullish84
Ouch!!! Let's be civil and fair, their intentions were in the right place. Remember all opinions in this website have to be taken at face value
NO, a prat is a prat whatever way you dress it up.

Not everyone in life makes it in business, read books or do the work, that is the difference.
  • #35
  • May 17, 2011 7:28pm May 17, 2011 7:28pm
Quoting jag1966
NO, a prat is a prat whatever way you dress it up.

Not everyone in life makes it in business, read books or do the work, that is the difference.
Forgive my ignorance, what's a prat? Not catching on to the slang
  • #36
  • May 17, 2011 7:38pm May 17, 2011 7:38pm
Quoting bullish84
Forgive my ignorance, what's a prat? Not catching on to the slang
a prat is an idiot who has no clue about real life.
  • #37
  • May 17, 2011 9:05pm May 17, 2011 9:05pm
Something that has proven to help me psych wise over the years is not to pay attention to the dollar amount, I focus more on pips than anything else, I don't count nickels and dimes. I've also traded standard multi lots and multi micros, im not worried of losing any more invested capital because I've gained and lost well beyond what my log shows.

As far as advanced statistical analysis of my trades before/during/after or however you want to calculate it to better optimize and understand what's happening IMHO is a lot of mental masturbation. At the end of the day you can number crunch anything but what matters is your end of the day P/L.
If using advanced stats help you trade better than im all for it if it suits you, as for me KISS is the way to go, paralysis by analysis is the real trader killer
  • #38
  • May 17, 2011 9:23pm May 17, 2011 9:23pm
Quoting bullish84
If using advanced stats help you trade better than im all for it if it suits you, as for me KISS is the way to go, paralysis by analysis is the real trader killer
This is one of the primary reasons why 95% end up failing, after their midnight fling with the upside of the positive expectancy curve.

How can you win in a business of numbers, without crunching the numbers - I mean, the notion itself is so irrational.

The only way to know what your trades are really doing and how to optimize your entire business, is to go inside the trade itself. And, there is no way to do that effectively without analyzing your MFE and MAE, relative to your Net Pips Per Trade and Stops Per Execution. That analysis tells you how close to the edge you are trading, or how much room you have for moving your Entry, Limit and Stop either higher or lower.

But, never mind - the more time I spend on this forum the more I realize just how much I'm wasting my time. I'll let you get back to asking questions you really don't understand and that you really don't want straight answers to.

As Gilda Radner, used to say: Never Mind.

These forums have really changed over the years - I can tell ya that much. They used to be places where learning actually took place, experienced traders would teach, inexperienced traders would learn and ultimately become experienced traders themselves, who would then return every once in a while to teach and give back. But, it would seem today that two (2) months of profits makes an experienced trader.

LOL, and I thought 10 years in the business was a long time. Hilarious!

Ok, that was my last post on this forum - I 100% guaranteed it!

Happy Trading to all and to all a very good night.
  • #39
  • May 17, 2011 10:21pm May 17, 2011 10:21pm
Jet, do not perceive my comments as a insult it was not directed at you. If someone doesn't exactly agree with you on your approach, no reason to storm off on a tirade and claim your experience and mastery of statistical analysis over everyone else in these forums and that everyone else are just a bunch wet behind the ears rooks. You come off as arrogant and all knowing of these dynamic markets. I've met plenty of successful millionaire person/s who barely graduated high school and run multi million dollar car dealerships, real estate brokerages, medical centers etc. Trust me they run very simple biz models and generally all of their own accounting amazingly enough.

In the end it's my belief that hard work, persistence and knowing ones self will get you where you need to go

As I see this will be your last post thx for stopping by and good luck in your endeavors
  • #40
  • May 18, 2011 12:31am May 18, 2011 12:31am
Quoting bullish84
Jet, do not perceive my comments as a insult it was not directed at you. If someone doesn't exactly agree with you on your approach, no reason to storm off on a tirade and claim your experience and mastery of statistical analysis over everyone else in these forums and that everyone else are just a bunch wet behind the ears rooks. You come off as arrogant and all knowing of these dynamic markets. I've met plenty of successful millionaire person/s who barely graduated high school and run multi million dollar car dealerships, real estate brokerages,...
i want to ask you, in all seriousness, do you believe these average-educated people in high places you mention are doing so well because of their own shortcomings or because of the effectiveness of the people underneath them?

any idiot can get to the top with enough people propping them up. isn't the general consensus that people get promoted until they get to a point where they are no longer being productive?
Congratulations ScalaFX for coming out of the closet!
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