How Your Position Sizing Strategy Can KILL Your Trading Performance
Does winning every trade for a three year period in one particular trading strategy sound like a problem? On the surface a trader might say, “Of course not!” In fact, we experienced a situation very similar to this scenario with the X4V17 trading strategy. This type of scenario could set up a trader with a poor or non-existent position sizing strategy for failure. If you are a person who relies on the income you generate through trading, you must preserve your capital. No capital, no income. The position sizing strategy you employ should grow your account systematically over the long-term.
There is no perfect formula but what if you thought you found the perfect trade? From an income trader’s point of view, a trade that is put on consistently that has a historical win rate of 80% is a fantastic trading strategy. What happens when this perfect trade wins every month for three years straight? Might a trader gain clouded judgement after say a year of winning every month? After 24 months of wins a trader may acquire so much confidence that he may convince himself that he found the holy grail trade. Over next 12 months he may double, triple, or even quadruple his trading size because he believes so strongly that it will keep winning. What happens when it doesn’t. What happens when the losing 20% shows up? It will happen eventually and if you are trading at a much larger size the loss can take a toll on you both financially and mentally.
We see this story play itself out again and again with traders. Learn to not fall prey to the siren’s sweet songs and before you go all in be aware of the dangers of improper position sizing. Have a plan. Stick to a plan. Profit from the plan. This is the formula for having a long successful trading career.