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I am quickly approaching 800 holders of my sets on @tokensets . That probably makes this a good time to talk about an important aspect of my trading, which is position sizing.
I get asked sometimes why I often take smaller positions. The simple answer is "risk".
I get asked sometimes why I often take smaller positions. The simple answer is "risk".
Essentially a trader should not just look at how much they could make (reward) per trade but also how much they could lose (risk). In addition to that there is also the fact that any trade could be a losing trade which makes risk even more critical to manage.
Diving deeper, a good trading strategy will have at least a slight long term edge. Losses on the other hand create a compounding disadvantage, neutralizing the edge. A 10% loss takes 11% gains to recover, 20% loss takes 25% to recover, and 50% loss takes 100% gains to recover.
There comes an inflection point where a short term loss can become so large so fast that even a strategy with an edge can't recover. Think of it like counting cards in blackjack. This gives you a slight long term advantage (your edge), but requires your "per-hand" bets...
to be small enough that the losses don't wipe out your edge. For example if you bet 10% of your bankroll per hand, it doesn't really matter if you have a 1%, 2%, 5% etc. edge because you will face ruin before the edge has a chance to play out.
This principle drives my trade sizing. I believe my candlestick has an edge but my account needs to stay above water long enough for the edge to take hold. While I won't make as much on my winners, we can let compounding profits resolve that limitation in the long term.
You can see many sets (both robo and social) will wildly swing double digits, sometimes taking double digit losses per trade. This type of risk requires the first trades to be big winners. If this strategy takes a couple large losers it is almost certainly dead on arrival.
That makes that type of risky strategy reliant on the first trades being large winners, which is out of a traders control, and makes the success too luck based (gambling).
Alternatively reducing trade size makes survivability more about the edge and less about luck.
Alternatively reducing trade size makes survivability more about the edge and less about luck.
The other aspect is risk tolerance. Someone with a few hundred or thousands may be okay with large risk but someone with 10's or 100's of thousands may not be okay risking double digit losses in a single trade. This human element is certainly worth considering as well.
I wrote an article that discusses risk objectives for my price action candlestick sets. If you want to see what those objectives are you can read about them here. https://medium.com/@aaronkruger/candlestick-price-action-set-risk-objectives-dfbd512af109
If you want to take a peek at my sets you can find them on my social trader page https://www.tokensets.com/trader/MoonshotCapital
Also, never ever buy a set without doing proper comparison and research. I have create a website that makes this a breeze http://tokenviz.io .
#DeFi $ETH $LINK $BTC
Also, never ever buy a set without doing proper comparison and research. I have create a website that makes this a breeze http://tokenviz.io .
#DeFi $ETH $LINK $BTC
