Reverse thinking on position sizing

Vonasi · Fri, 03 Aug 2018 17:49:30 +0000

Say for example you have written a strategy and it is a winning machine but you know it is a high risk strategy because at any moment the market could go into free fall and you know your strategy could just empty your account very rapidly….. but the chance of the market going into one of these sort of free falls is a once in a twenty year chance. Surely if you have money that you are willing to lose then it would make sense to start with a big stake and as the wins and profits accumulate reduce your stake so that as more time passes and the once in a twenty year account killing event has not happened when it finally does you will have lots of profits and a small stake. You might even survive the event thanks to your large capital and small stake size. Then you can start again with a bigger stake once the market has reverted to normal (I am thinking major indices here). Obviously the account killing event could happen tomorrow but then it is called ‘Spread BETTING’ for a reason. Just a bit of reverse thinking for discussion…..

This topic has 15 replies, 3 voices, and was last updated 5 years ago by Vonasi.

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08/04/2018 at 3:52 PM #77551

Vonasi

Obviously it does depend on your starting date and your starting stake size compared to your starting capital. Here is a starting stake size of 6 on a capital of just 5K starting just before the 2008 crash.

…but had the starting stake been just 5 then this happens:

Which I guess just proves that if you want to increase your risk as you win or decrease your risk as you win the most important thing is starting with enough capital to be able to actually win.

So I guess that is the lesson learnt from this little exercise in reverse thinking.

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GraHal

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Reverse thinking on position sizing

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