What is the most important question a trader asks...

....before he puts on a trade?

How much?

Matter of fact, i believe (belief #1 for me), that the answer to this question is the single most decisive factor in a traders equity curve. This is vis a vis the traders bankroll obviously. And this is also obvious to many, already, obviously, lol. But bear with me.

Dr. Van Tharp describes MM as How much? or position sizing. I agree. Ralph Vince gave an experiment to 50 Phd's (barring those with a Trading background or Statistics background), a system that returned 2:1 on a 50% win ration. Awesome, 48 of them went broke or lost money. Aside from the guys who went broke, all scores were different. Other such experiments have been conducted (Van Tharp). What does this tell us?

I already posted on position size vs time frame (http://www.forexfactory.com/showthread.php?t=241268), i was thinking if they were other ways to look at this enticing possibility of variable position sizing (with a baseline so to speak that goes up, hopefully with expectancy). Why am i so concerned with this topic leads really to what my objectives are, quickly i will explain.

I look at trading as a venue that would give me 6% a month on average, i am ready to compound without withdrawal for the next few years. I know this is extemely hard, but that is what my world would look like ideally. I think 3% is more within my reach, but..

see, my personal pain threshold is 500 bets, that means i am comfortable risking 0.2% of my equity on each trade. I know a 100 bets is enough for most, for some even 50 or 20. But for me 500 works. (believe me this a problem really also as quite a few markets like the S&P 500 for example are out of my reach, and i would like to trade a few of these markets to get my trade frequency up)(bankroll size).

So our 1R = 0.2%, and i need to close 30R by the end of the month to hit 6%. Yikes! How am I going to do that? over say 8 years every Month. ( i know i know 200 times ur $, everybody would be a gazziolionaire and all that, but that is not the focus, the focus is longevity, truth in expectations using systems that stand the test of time and conditions(robust).The focus is 6%/3%, lets start assuming for a few min).

So to produce 30R i have to put a minimum of a 100 trades a month, if not 150. (This is highly subjective to each person, my style or whatever u want to call it presents this frame for me, adjust accordingly). Thats like 7 trades a day, that for me IS the problem. I would like to do this in maybe 50 trades a month, if not 40, ha ha the eternal timeframe vs system question (which tf is best?).

So like timeframes, how about systems and correlation and what not. The goal being to up the ante to 1% maybe or 0.5%, with some reasonable level of confidence (quantative also maybe?).


Say for example, I use the following five systems

System A --- DIBS system (daily/weekly and hourly/daily)

System B ---- Pinbar system from J16 (J16/Jankone Daily/5min)

System C --- Dual TF momentum/Elliot/Fib ret Exret/Time Ex & cycle (Robert Miner Daily/1hour)

System D --- BRV Support and Resistance

System E ---- A system constructed around Vantage Point Forex signals


Lets say you decide to bet 0.2% every trade. But I have noticed there are times when more than one system can give me the same signal.

Let me digress here to explain, i know there are a lot of complications here, but lets assume the necessarry precautions have been taken as regards to correlation and coinciding, similar indicators on multiple systems (this is harder then it looks and might be the reason this idea cannot be implemented in the first place, imo, but lets assume for now).

So if i have two systems on the same signal, in the same time whereabouts (scale in or pyramid accordingly on entries that are apart in time and price, or a universal entry trigger gets u in on both at the same time, whatever u like), i go for 0.4%. 3 signals = 0.6% and and so on till 1%.

If i can increase my position size variably like this, i might need 15R to get 6% (bring my avg position size to 0.5%, with the psychological and quantitative (ill get back to this) confidence to do so, hence the edge on yourself). So in effect im looking for 3R from each system as a whole, increasing my position size using, lets call it, global system confluence, helps me!?

Regarding the quantitative aspect here, correlation aside, if two positive expectancy events (assuming i am successful in trading these systems) (lets also assume they have a hit rate of more than 55%) happen at the same time (the signals are the events and they are expected to hit 63% and 60% of the time), don't we improve the overall odds? Am i thinking about all this in a warped way., lol.

I know i am trying to get around the dependency or independency issue of a group of trades, instead trying to fiddle around with my optimal f, but If position size is the most imp Q (how many contracts to put on?)? Then I think getting to know how people think on these lines (either this is explorable or is junk) could be valuable.

All comments appreciated.

"Am I placing a good trade?".

Upon reading the post again, i should mention, that "How much?" is my answer. So I am really discussing position size vs systems. Sorry.

What would Jesus do?

which broker do i send this pile of money to ?


http://3.bp.blogspot.com/_Py3gnD8h9e.../P1USMint3.JPG

All jokes aside,
I believe the following saying applied allot to what you are planning to do :
“Jack of all trades master of none”
There are several problems with trading several systems at once; I found these out by trying to do this myself a while ago:

1) The systems compound on each other , so you get a more volatile equity curve so say system 1 has max DD of 5% and system 2 had max DD 0f 6% if these happen to coincide which does happen then the total net DD of the system at that point will be 11% max DD which if you were planning to see only about 6% DD could take you by surprise , so if you have 5 systems you want to trade at the same time I would suggest adding all the expected DDs to calculate a expected result.

2) You will at some point lose track of what you are doing, this happened with me when I was trading 3 accounts with 3 systems with different lot sizes and different entry and exit rules.

3) And of course the saying I said at the start, you will be trading several system but you will not be a master at any one, I suggest picking one or at most 2 systems to trade. I myself and trading 3 at this moment but the 2 I use in the day are the same except for MM rules differ and the third is a daily system which I check at 12pm.

I’m not to shore what you were going on about when you said 500 bet pain threshold because 500 x 0.2% = 100% so you are willing to lose the whole account?

I would suggest not looking for what you are planning to win every month but set a limit to what you can lose as a maximum every month , for example there is a rule I read somewhere The 2 and 6 rule : this rule is that you risk no more than 2 % per trade and 6% per month , this would prevent large loosing streaks and let winning streaks go for low risk , now this is actually more of a guide line than a rule you have to fit it to your own trading strategy, for example I am currently using that rule but I use a max of 1% risk per trade a 6% per month .

And betting is bad if you want to bet I suggest a casino.

Best of luck in your future trading .

What is risk? It is the chance of hitting a lower threshold which will not allow me to continue trading. If I am ready to compound for a 'while', DD diminishes as a factor in my eyes (more than it already is). All I am worried about is my biggest loss (no that will not be 0.2% obv, slippage etc, but it is related to tht base figure), hence the 500 bet confidence level. By the way, that does not mean i need to lose 500 bets, its what i 'need'.
If a system is +ev, and u can support that with forward and backtesting, then drawdown is meaningless.

Your point on correlation is very valid (which i sidestepped in op, ).

I look at 6% as a figure I want to hit, keeping my risk in mind (meaning i dont look at making before losing), i think that is very obvious in my post.

Thanks for ur comments, eitherway and good luck to you too.

The DD does matters, because allot of traders will start trading with certain expectations and then suddenly instead of -10% DD what they were expecting suddenly there at -20% because they continued to play believing the back tests they did showed the max DD they will ever experience would be around -10%, and at that point they stop trading at a loss, and this sort of scenario is with one system when all 5 go against you it could amplify the MAX DD to uncontrollable levels.
It would not matter once you have gains to compensate but if it happens right off the bat then it could cause you to stop at a loss to rethink your strategy.
It might not matter if you have a micro account but if you have a substantial amount of your money riding on it then you will care more about DD.

All I ask is " does this trade meet my rules'

Sorry if I'm not understanding your post. You're discussing whether to use a larger position size if a potential move is confirmed by a second system?

First answer is: why not?

Second answer is: dude, chill. You've got a lot of unnecessary stuff going on in your brain. It doesn't make you a better trader to think so in-depth about these things. If you get confluence (pin bar plus support) and want to use more money, do it, what's the big deal?

But any time you're doing something new, try it first in either simulator or with less money - if it doesn't work out, no harm done; if it does work out, you'll have more confidence when you return to your normal position size.

Rob

Its the rules that are in question, no? I mean aren't we discussing rules. Position sizing according to system signals or confluence amongst them (time frame etc) is a rule, position size and how you determine it alone being your most important rule set for your system, imo. But well put, i guess the last question will be the one you mentioned, ultimately .

Actually I think we are misunderstanding each other, so no point here (unless something comes to one of us), but thanks for your views, I learnt from them.

So you agree partially, fine. You are right, confidence is a direct indicator of your risk tolerance (sometimes to your detriment, but anything within a 1% is safe enough and well within kelly). I guess I am looking to mechanize a pure discretionary problem (how much to use regarding confluence etc), maybe stepping back might help, thanks.

2nd that.
nothing worse than a losing trade you should not have even been on in the first place. Even if it wins there is no satisfaction that you get from a job well done. You know that you were just lucky this time but if you dont pull your socks up you will end up a failure. A losing trade is as good as a winning trade when the trader performance is not in question

I suspect I'm still not following you, but: add 50% for each item of confluence?

System A = 100,000
System A + D = 150,000
System A + D + C = 225,000
etc.

practically, I would use lower lot size if I am less confident in a trade and higher if I am more confident, etc. Important thing to mention is while you are trying to figure all this stuff out, the clock is ticking and you might lose a good entry. So, a good option would be to get it and then scale in or scale out.

technically, I would tradeoff pips amount and lot size in determining stop loss.
stop loss depends on time frame, thus lot size gets smaller as i trade bigger timeframes.