Hi Trader Alan; You mentioned that in tough times you reduce your share size.
This reminds of those that do the opposite. They increase their share size when they make a losing trade. I think everybody who has seen a reasonably large number of beginning traders knew of someone who did this, as about a quarter the novice traders I have known had this problem.
When I was in college, a guy I knew was convinced that he could win at gambling if he just doubled his bet after each time he was wrong. This way, he was never more than one bet away from walking away with a profit. Try as I would to explain, I convince him that his expected results wouldn't be improved by modifying his bet size. This is so because the Gods of Chance really don't care how good or bad your day has been. So your next bet has just as good a chance as your previous one.
In trading, I have found that the situation is even worse. That is, traders tend to streak. I have had as many as 18 successful trades in a row, and as many as 10 bad ones. This is more than random chance would have predicted.
So if I lose money on a trade, I believe that it is more likely that I will lose money on the next. So I never increase my share size after a loser. In fact, my trades following a winning trade average five or six cents per share positive, even on losing days.
I've only tried modifying my share size according to my results once, and I found myself thinking "now if I can get this trade profitable, I can go back to the larger share size." and "I need to get this trade profitable, so I can keep my streak running. So I'll just go ahead and hold it until it becomes profitable again..." This was bad news. I might try and stamp out this behavior, but it looked to be pretty hard to do. So instead, I trade the same size all day.
Anybody out there modify their share size in real time (i.e. intraday) according to their results? If so, how did you control your brain?
-- Carl |
