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Your assumption is basically wrong. If you knew which were the bad trades why
enter them to begin with. In cards and other games of chance the odds are always
the same. So you can vary your bet size only if you can change the probability of
success. This can be done in all games of chance and the markets. You can never
change the odds.
If you enter a trade, you enter to win, therefor your maximum bet size or stop or
number of contracts. That allows you to sell into rallies and buy into disaster.
You always want to be able to say, " give them to me in falling markets" and "I
have got them for you" in running markets. The things that take you out of the
market are your target, or a volatility stop.
When volatility exceeds your stop tolerance, reduce your size. There is always
another trade and there is always a retracement. Greed kills and compounding
will destroy you. Ira
KAllebrand@xxxxxxx wrote:
> I am day trading currencies - I have been studying position sizing, as
> explained by Van Tharp, and trying to figure out a good way to utilize it in
> my day trading. I understand risk management and try to make sure that I cut
> my losses quickly and efficiently - when I feel strongly about a market
> trending, I will let profits run and exit on a market order, or a limit or
> MIT. My trouble right now is first defining position sizing clearly in a day
> trading context, and then applying some sort of position sizing discipline to
> my trading. My concept of it in the simplest terms is basically number of
> contracts purchased: you want to have more contracts on winning trades and
> less on losing trades in the end. So entering each trade with 2 contracts,
> you could add to those when the trade trends in your direction, or just lose
> the 2 if it goes against you in a short time frame. I am struggling with
> whether to make it mechanical, like if the market moves 10 points to the good
> from my entry and indicators still look good, then purchase 2 more contracts
> and adjust a new 4 contract protection stop down close to the new entry point
> - I am just beginning to play with this and am finding it hard to wrap my
> brain around the risk/reward ratios involved with this scenario. Does
> anybody have any thoughts on approaches to position sizing in a day trading
> context?
> Thanks and g'day
> Kent
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