keeping risk constant and increasing the exposure, opens up you to hidden risks?

January 31st, 2015, 03:58 AM

I watched some youtube video, which advocates: "keeping risk constant and increasing the exposure"

i.e always keep the max loss on account per trade small (say 1-2%) but feel free to increase your position size if you are winning (pyramiding) just make sure to adjust your stop loss levels to manage your risk down to 1-2% levels.

What you guys think about this? I feel keeping the contract size small and not pyramiding will eventually outperform such 'const risk + pyramiding' scheme. This conclusion of mine is through intuition from nature. Size of animal matters and smaller the size higher the chance of survival against harsher environments, so if there is a nuclear holocaust we can be quite assured some kind of bacterias and microbes will survive and the bigger sized animals will be wiped out first.

There is another diametrically opposite way to see pyramiding: "you gotta press your winners, outliers are where the money is"

I don't know how to test my conclusions, so am asking here. What you guys think? How to make sense of these two diametrically opposite views!?

Thanks,
Rocktrader
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Edit: Adding some interesting trivia

Allometry is the study of animal size
Some kind of bacteria are known to stay alive in radioactive environments repairing their own DNA which gets knocked down by radiation!
Deinococcus radiodurans is the name of that bad ass bacteria!

February 3rd, 2015, 02:26 PM

rocktrader

I watched some youtube video, which advocates: "keeping risk constant and increasing the exposure"

i.e always keep the max loss on account per trade small (say 1-2%) but feel free to increase your position size if you are winning (pyramiding) just make sure to adjust your stop loss levels to manage your risk down to 1-2% levels.

What you guys think about this? I feel keeping the contract size small and not pyramiding will eventually outperform such 'const risk + pyramiding' scheme. This conclusion of mine is through intuition from nature. Size of animal matters and smaller the size higher the chance of survival against harsher environments, so if there is a nuclear holocaust we can be quite assured some kind of bacterias and microbes will survive and the bigger sized animals will be wiped out first.

There is another diametrically opposite way to see pyramiding: "you gotta press your winners, outliers are where the money is"

I don't know how to test my conclusions, so am asking here. What you guys think? How to make sense of these two diametrically opposite views!?

Thanks,
Rocktrader
---------------
Edit: Adding some interesting trivia

Allometry is the study of animal size
Some kind of bacteria are known to stay alive in radioactive environments repairing their own DNA which gets knocked down by radiation!
Deinococcus radiodurans is the name of that bad ass bacteria!

Was thinking, I believe that one could do some back testing with something like Ninjatrader (or something like it) to see what kind of results would come forth.

February 6th, 2015, 02:25 AM

I would think these are 2 separate things. Overleveraging, is bad which I don't think most traders would dispute. The larger the leverage, the higher the chance of going bust and due to the asymmetry of returns, the longer it would take to climb out from drawdowns.

Scaling in however, is more of a tactical approach which could still be limited to a 2% position size. e.g Scaling 4 entries with 0.5% positions size. This could be done either adding positions to winners or vice versa to losers. There shouldn't be a free lunch here if your R:R ratio increases at the expense of your winning percentage due to getting stopped up due to shifting up your breakeven stops. Your net expectancy of the trade would still remain the same.

As always, a lot depends on market context and the tactics used to trade them.

keeping risk constant and increasing the exposure, opens up you to hidden risks?

Discussion in Psychology and Money Management

keeping risk constant and increasing the exposure, opens up you to hidden risks?