New idea for money management (position sizing).

[fe2008]

While studying the pros and cons of several money management systems and position sizing, I came with a new idea (probably it has been discussed before).


Basically, it's a fixed fractional but the difference is you only add up contracts after a drawdown which could be the average drawdown of the trading system.

That way you lower the chances of adding up contracts right before a drawdown.

What you guys think of this?

 

[Shanghai]

That's like saying that you will increase your stake at the roulette wheel after a losing streak. However the roulette wheel doesn't know or care whether you are making money or not and neither do the markets. Just because you are experiencing an average drawdown for your system there is no reason why the losses shouldn't continue. In fact it might mean that the market conditions are not currently conducive to your system so it could be a good time to be reducing your risk, not adding to it.

 

[jiggly]

increase your lot sizes when trading well and decrease them when you are trading relatively poorly.

 

[coopster]

if you double the amount you trade each time you lose, eventually you'll get back to zero!

:cheesy:

 

[Hoggums]

Sounds like a variant of martingale - sizing up after a loser.

Only leads one way....

 

[Pento]

Dangerous territory sizing up when you are on a run of drawdowns. The general idea is to reduce trading exposure when you are finding it tough and then size up again when you are on a good spell.

It looks like you might be a fan of the pyramid averaging strategy.

 

[enragedcow]

I think if the Random Walk Hypothesis held true then this would be a good strategy because past price action would not affect future price action

maybe if you have a string of losers a better money management strategy would be to change your view of the market and then increase bid size (risky but allows you to get back into the black)

i'd imagine scaling up after losers would be incredibly emotionally draining, you'd have to have balls of single crystal carbon (you jelly material engineers?) to trade like that

i've always thought the best strategy after a long string of losing trades is just to sit back and watch for a while, or go for a walk