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In my trading I had several great run ups when I more than doubled my account in a few months only to give it back in the next month or two. I was smart enough to stop at my initial capital and not blow the account, but giving back profits was damn painful. The reason was always position size. One example: I got from 100k to 270k (South African Rand) in about four months. I traded from 3 to 10 contracts using fixed ratio and the volatility expansion system by Larry Williams. The system has been described many times: entry = today's open plus yesterday's range times N. Vice versa for shorts. In retrospect, this system is quite cyclical. So I got to 10 contracts and made a "smart" decision: I am now going to trade in the multiples of 10 contracts using the same Delta. Then, after a loss, I stayed with the same size - what's better way to make the losses back, isn't it? After more losses still the same, overinflated size. When the smoke settled and I calculated what my account would be if I had the discipline to stick with the position size template. It turned out that my account would be about 25% down. Poor risk management got me back to the starting line.
Can you help answer these questions from other members on NexusFi?
Traders cannot offload their risk management because imo they do not have a profitable strategy long enough to ever worry about true risk management.
Traders who want to take 10k and live off of earnings most likely have way too much risk in order to get enormous returns.
The most widely offloaded risk management of traders today would be when a broker or an fcm force liquidates due to margin call and or the account going into debit. I have been involved with both of these and both times I felt immediate relief when the risk was mitigated for me.
I find this thread to be fascinating and I'm surprised more people have not chimed into the Convo.
There are not that many companies that I know that accept payment for risk management of actual positions. However there are lots of riskanagement consulting firms that can give you raw quantitative numbers on event risk volatility changes and other market risks like credit defaults etc. Those companies help successful traders maintain proper position size during certain periods where the expertise is necessary or useful.
Books have been written on risk management models and also about how these failed!
It all boils down to position size which is value at risk.
Excessive gains usually means excessive risk however anomalies do happen
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Howard Marks wrote one of his memos about traders and trying to 'time' the market. His point is the 'market' compounds at 8% annually, and as 'investors' we should be happy with that.
If I had 2 billion, as Mr. Marks does, sure 8% would be a very comfortable return, in terms of dollars. But even with a million dollars invested, 8% after taxes, would provide what? A luxury car payment for you and the wife, a few nice vacations, diners out for the year .... really not enough to retire and live on if you enjoy nice things.
So with a smaller account balance, we seek outpaced returns and with that have to assume out paced risk. That'swhy we're all here isn't it? We think (or hope) we can find a way to beat that 8% and beat it by a long shot. But as long as the individual is comfortable and willing to assume the risk level, so be it.
Some statistics professor demonstrated statistical anomalies the following experiment. He divided the class into two groups. One group was tossing the coin and recording the results, another was making it up. At the end the professor could tell without fail which group tosses the coin for real: the runs of heads of tails in a row were much longer in real toss group.
The point is, wins and losses come in streaks, and this is how professional gamblers make money in games with negative expectancy. The key is risk management. They push the stake when they hit a winning streak and walk away when it is over. Obvious analogy in trading is to increase the size when the system is in a run-up. Less intuitive example - adding to a winning position when a trend following system catches a trend.
And sure, someone with a small account has to push the size in order to get a meaningful growth. Even on Youtube there are a few examples of traders turning $200 into $140.000. Black Swan sort of thing: keep bleeding small amounts until you hit gold.
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