Scaling Risk

[DanFrank]

Hello,

I'm considering running with a scaling risk strategy. Upto 5% :-0 I know that this is 4% more than I should risk on any trade but given my small starting capital It would take me an age to grow using 1% rules.

Winning trade = increase risk by 1% / losing trade = decrease risk by 1%

My risk profile will look something like the following over 20 trades: 10wins & 10Losers
1 2 3 4 5 5 5 4 3 2 3 4 3 4 5 4 3 2 1 1 (% Risk)

The basis of my plan is to be big when I'm winning and small when (not if) my system is taking a battering. I'd like your thoughts please and wonder if anyone else has/is doing the same. My plan is only to only pick A+ trades and not to get complacent when I'm on a roll i.e 5% and pick average setups.

Regards
Dan

 

[Vrothdar]

I know that this is 4% more than I should risk on any trade but given my small starting capital It would take me an age to grow using 1% rules.

That's not necessarily true - how much you risk per trade is dependent on your trading methods, expected results, market conditions etc. The idea of not risking more than 1% is nothing more than a guideline aimed at people who don't understand the effects of a losing streak on account balance.

Likewise, whether or not the risk strategy you proposed is a good idea again raises questions.

Are you more likely to have a winning trade when the previous one was also a win?
Are you psychologically prepared to weather the relatively large losses when a losing trade occurs at 5% risk?

I'd suggest testing it yourself though as the learning process alone will be worthwhile.

 

[abottoml]

This sounds like an anti-martingale system applied to risk?

More here:
http://www.trade2win.com/boards/planning-risk-money-management/25101-anti-martingale.html
Martingale (betting system) - Wikipedia, the free encyclopedia

"Risk" is effectively the same as "Stake" when a trader talks to a gambler I suppose ...

 

[RedGreenBen]

Winning trade = increase risk by 1% / losing trade = decrease risk by 1%

Possibly 'stating the bloody obvious' but this assumes that there is a correlation between the outcome of trade N and trade N+1. I don't know if this correlation holds, but the first thing you might want to do is look at your historical results to see if it does.

Ben

 

[Mr.J-Arthur]

This could get ugly real quick on a string of loss. 20 trades and you're out @ 5%. 4% you're out @ 25 trades. This could work. Your average winner will need to be BIG. At least you won't get stopped out because of market noise. I found out really quick that small accounts with 1% stops get scalped on every trade easily. So this has a good chance of working.

Every system is benefited by luck, so good luck! Post results with % and other stats like # of trades etc.
What is your Risk/Reward and target profit on each trade?

 

[Vrothdar]

This could get ugly real quick on a string of loss. 20 trades and you're out @ 5%. 4% you're out @ 25 trades.

He'd be scaling out so after four losses he'd be trading at 1% risk and you've not considered the fact that the monetary value of 5% or 4% changes after each loss.. After 20 losses in a row using his system he'd be down to approximately 74% of his starting account.

At least you won't get stopped out because of market noise. I found out really quick that small accounts with 1% stops get scalped on every trade easily. So this has a good chance of working.

Using a fixed position size and adjusting risk using your stop is crazy. I hope he's going to set his stop at the right level and then adjust position size so that his risk is appropriate.

If you're getting stopped out because of "market noise" then set your stops further out and reduce your position size to keep your risk constant.

Every system is benefited by luck, so good luck!

Luck is for gamblers. Edges are for traders.

 

[new_trader]

This could get ugly real quick on a string of loss. 20 trades and you're out @ 5%. 4% you're out @ 25 trades. This could work. Your average winner will need to be BIG. At least you won't get stopped out because of market noise. I found out really quick that small accounts with 1% stops get scalped on every trade easily. So this has a good chance of working.

Every system is benefited by luck, so good luck! Post results with % and other stats like # of trades etc.
What is your Risk/Reward and target profit on each trade?

You are doing this on purpose just to annoy me aren't you

YOU DON'T UNDERSTAND HOW % WORKS Mr.J-Arthur!!!

GO BACK TO SCHOOL Mr.J-Arthur

 

[Vrothdar]

You just summed up how I was feeling when typing my response.

 

[new_trader]

You just summed up how I was feeling when typing my response.

Mr J Arthur is posting this NONSENSE everywhere!!

 

[DanFrank]

This sounds like an anti-martingale system applied to risk?

Thanks for giving it a name (anti-martingale). I've obviously got a lot more research to do and from the few posts I've read so far this is a topic that causes major divide. Its like marmite, you either love it or hate it. I like marmite and the ideas behind the anti martingale approach. I must be wierd.....

Thanks for the replies.
Dan

 

[Vrothdar]

I wouldn't say it's like marmite really. It will be effective for some markets and trading systems while other systems it will decrease performance. The only research you really need to do is a comparison of the results of your system with and without an anti-martingale position sizing strategy. If it's better with it then use it otherwise don't.

You can read all you like about anti-martingale position sizing but you still wont have any idea whether or not it's useful for you and your system.

 

[DanFrank]

Thanks for your comments (testing in progress), although I don't know what was happening regarding Mr J.Arthurs post.

 

[Vrothdar]

Basically the figures he posted and suggestions he made were complete cobblers.