How do you know when to reduce your position size?
Most traders have rules for increasing size and none for reducing it. Yet the best time to trade smaller is exactly when it feels wrong: during losing streaks, after big wins, and into major events.
What triggers your size reduction?
- the conditions you use
- how much you cut and for how long
- a time cutting size saved you
The drawdown guide makes the case mathematically.
Background: Drawdown and recovery: why a 50% loss needs a 100% gain
Losses and gains aren't symmetrical. See how much you need to recover from a drawdown, what losing streaks do at different risk levels and how to set limits.
How much do you need to gain to recover from a 50% loss?
100%. The gain needed is the loss divided by one minus the loss, so larger drawdowns need disproportionately larger gains.
What is maximum drawdown?
The largest fall in account value from a peak to a later low, before a new peak is reached, usually expressed as a percentage.
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