LOT SIZE CONSISTENCY

Many traders get carried away in the euphoria placing trades using varying lot sizes.
 The major disadvantage is that it does not allow you assess you performance easily
 It brings about Trade Inconsistency
It brings about lack of trust in your trade deployments
It gives drawdowns easily i.e a 1.0 lot size 5 wins can bee brought down by a singe 5.0 Loss
It kills your confidence as an experienced trader .


  i will love us to discuss this issue as it portends to be one of the major reasons why people fail in foreign exchange trading

Interesting point. I have been thinking of this too. But I actually do the opposite. Once I am in the money for a month, I reduce my size to avoid losing monthly returns. If in the first-second week of the month I made enough, i would reduce size in the third week and reduce even further at the last week.

Consistency in lot size is important for steady growth.

Each trader needs to focus on the strategy and not the lot size. Increasing and or decreasing the lot size in one trading session will ultimately affect the statistics in a way that the probability will not pan out correctly.

In the beginning stages, using a fixed lot size is a must to determine the probability of the strategy. Once the probability will surely lead to profits in the longrun, then and only then, the lot size can be adjusted.

Lot size adjustments often lead to blown accounts if done improperly, because many traders feel it necessary to increase their lot size to recoup a loss from the previous trade (martingale- This only works with Unlimited capital).

However, on the contrast. using lot size adjustments can be an affective method to recoup and or Breakeven within 1 wave/cycle. Used properly, and only for experienced traders, you can adjust your lotsize accordingly and necessarily to recoup a loss and or to maximize a gain. I would not suggest exercising this behavior unless you have accuracy, confidence, and you are using risk capital only.

For the time being, I believe that 'imagesfx' is correct that lot size can lead to inconsistency and mostly to failure

I agree. My reason to reduce size by the end of the month is due to statistics that I tend to have better beginning/ middle of the month than the end. Hence, once I am in the profit, I can continue trading last week too if conditions permit but instead of risking say 1.5-2% per trade, I would risk 0.5-1%. If I have a couple of losses, I am down a little, but still have most of the profits locked. I think that increasing size to trade back losses is a really very bad thing to do, but to reduce size once money made to protect it, I see nothing wrong with it. Most of the time size changes anyway depending upon stop loss size.

Chikot posted:
   Most of the time size changes anyway depending upon stop loss size.

You are correct about that.. Your Lotsize is determined by your Stoploss.
Here is a video I made a year ago on determining your Lotsize.

Good video, especially for those who trade with MT4. It's so much easier to manage size with Oanda.

pipinvestment1 posted:
    

Chikot posted:
   Most of the time size changes anyway depending upon stop loss size.

You are correct about that.. Your Lotsize is determined by your Stoploss.
Here is a video I made a year ago on determining your Lotsize.

Why not base your stop-loss on your lot-size? 😇

There are several ways to calculate lot-size, i.e. based on stop-loss, using ATR, % of account, etc. Of course, you still need to figure out a risk management method for the approach used, you need to be comfortable with it and it needs to actually work.

pipinvestment1 posted:
    

Chikot posted:
   Most of the time size changes anyway depending upon stop loss size.

You are correct about that.. Your Lotsize is determined by your Stoploss.
Here is a video I made a year ago on determining your Lotsize.

You beat me to it. It is not about lot size. It is about risk and that is determined by lot size + stoploss. If you vary your stoploss you should vary your lot size to keep risk the same.

canuck15 posted:
    

pipinvestment1 posted:
    

Chikot posted:
   Most of the time size changes anyway depending upon stop loss size.

You are correct about that.. Your Lotsize is determined by your Stoploss.
Here is a video I made a year ago on determining your Lotsize.

You beat me to it. It is not about lot size. It is about risk and that is determined by lot size + stoploss. If you vary your stoploss you should vary your lot size to keep risk the same.

I agree with u, the OP is still dealing with fear factor

It's a matter of preferences.

For me, initial stop loss size of every single trade is the factor determining the lot size, hand in hand with a fixed fraction of account equity I'm willing to risk. In my case, this is 1%. My init stop is never fixed but adjusted to market - I'm putting it exactly there where the market will eventually show me I was wrong so the stop placement is always depending on recent price action. Therefore, my lot sizes can't be constant and have to vary. This actually allows me to apply consistent MM rules and has nothing to do with the technical / statistical aspect of trade R/R that can be analyzed counting PIPS won & lost. If that is wrong, then the trading strategy is wrong and no money management style can save you from losing. But if the strategy is sound, varying lot sizes will allow you to emphasize its results regardless of particular market conditions, volatility etc. while preserving a steady approach to risk.

In fact, the change in % of equity is the ONLY money-related factor I'm respecting once I'm in a trade. I don't care how many pips is my current stop and I don't care for the lotsize.

I have a thick horizontal line on chart named 'STOP'. Before I enter, I move the line exactly where I want my stop to be placed. I have made myself an EA reacting to hotkeys so with single keystrokes I can buy, sell, close (a quarter, third, half or whole position) or move the stop to BE. The EA calculates the lotsize according to the STOP line, current market price and account equity and once I trigger the trade, I see the change in %. Obviously, I'm watching the market for exit(s). But the %-figure is my most important 'indicator'. I always try to book some profit closing a third or a half of position to have at least 1:1 R/R done and let the rest run as a free trade.

I'd have to agree with Tom on this one..

My lot size is dependent on money management and currency pair volatility.

Trading is all about making
decisions. That seems simple
and straightforward enough, but
I’m not referring to the typical
‘buy or sell,’ ‘how much,’ or
‘where’-type trading decisions.
Instead I’m talking about the
likely biggest
trading decision
you’ll ever make-
Deciding exactly
what kind of
trader you want
to be. How will
you approach
the market ?
What timeframe
will you focus
on? What
will inform
your trading
decisions ? In
short, deciding
what trading
style you will
pursue will
probably be the
single biggest
determinant of your trading
success or failure.
From my experience, most
traders don’t even explicitly
acknowledge this question,
much less get around to actually
settling on an answer. But the
best traders always do and that’s
how they sur vive year after year,
market after market. Such trading
success is usually attributed to
‘discipline,’ but that raises the
question “Disciplined to what ?”
The answer, I would suggest,
is maintaining a disciplined
trading style. But you can’t
achieve that discipline if you
don’t settle on your trading style(F)
Like many new or
aspiring traders,
I spent my first
couple of years
trading without
an explicit style
and my results
showed it.
Money made one
month would be
given back the
next, or money
made in the
morning would
be coughed up
later that same
afternoon. It
was a frustrating
experience to say
the least.

Many traders get carried away in the euphoria placing trades using varying lot sizes.
The major disadvantage is that it does not allow you assess you performance easily
It brings about Trade Inconsistency
It brings about lack of trust in your trade deployments
It gives drawdowns easily i.e a 1.0 lot size 5 wins can bee brought down by a singe 5.0 Loss
It kills your confidence as an experienced trader .


i will love us to discuss this issue as it portends to be one of the major reasons why people fail in foreign exchange trading

I set my stop where the market tells me I'm wrong. The size of the stop depends mostly on market volatility. There's no euphoria. I don't care for lot size. I may even don't know how many lots I have on stake. But I have to know that my stop is placed sensibly and that my risk is 1% of equity. I need to see momentum (first signs at best). Then have to see some 'room' for the trade to go the right direction; twice the stop size at least. That's all.

Then:

If I trade one lot with a 50 pips stop (very high volatility) and hitting it makes a 1% loss, then I lose 1% of my account.
If I trade five lots with a 10 pips stop (moderate to low volatility) and hitting it makes a 1% loss, then I lose 1% of my account.
If I win in both trades and exit each trade after it went twice the stop size in my direction, then I gain 2% of my account with each trade.

What's wrong with that? What inconsistency brings this in? Am I meant to use fixed size stops to be a trader? Or am I not allowed to scalp during low volatility periods if I also take some swing trades for +100 pips gain from time to time? With every of my trades, I'll make or lose some % of equity. Sometimes I make 0.56% with a trade. Today I've made 4.22% with a single trade loaded with lots since the stop was 8 pips only. Sometimes I make a 0.47% loss. Then another 0.22% loss. Any single loss cannot exceed 1.00%. I don't over-tight my stops to make trades with 'euphoria' lots - I'd have to be crazy if I'd do that. Most of my losses I exit before the stop is being hit. I have considerably more winning trades than losing ones. And my risk/reward ratio on closed trades is 1/1.7 over past three months (about 300 trades).

I don't consider myself a successful trader simply since I'm not one yet; starting live in 1-2 weeks. But what's wrong if the math works? I'd really like to sort it out!

I really don't understand the point; everybody has different style of course, maybe some really good traders use fixed stops/fixed lots/fixed target ratios and it works for them. But every trader has to know what works for him at best. For me, responsibility to market conditions and changes are the key and I do my best to adjust my trades to it. I trade EURUSD only, entries and exits off M1 chart.

and last but not least:
I think the OP talks about inconsistencies resulting from poor psychology and MM - about the cases the trader becomes overconfident and rises his trade size in a rush to make more.. but such a problem is not lots; it's an overshoot of RISK EXPOSURE with that particular trade.. And that's not the same; LOT SIZE IS NOT RISK. LOT SIZE IS AN ATTRIBUTE OF RISK. There have to be some serious money management flaws. Maybe the trader has a working system, but I personally can't imagine any single trade would wipe my previous 5 profits. Yes, there are losing streaks. There are larger drawdowns coming from losing streaks. But I honestly think if some serious drawdown is a result of a single huge loss (or few huge losses) - then there's something wrong. Not with LOTS, but with the TRADER. And you won't make him a better trader even if you would force him to trade constant lot sizes only.. Such a trader will have some other trading psychology issues yet to be solved.. Just my 2 pips ;-)

Nice short

IMO lot sizing has all and ONLY to do with volatility/time... In MY strategy, I gauge the pair that im focused on in 1 of 4 groups... Flat (non trading)... and 3 seperate pip based groups.. one of which trades for 25 pips, one trades for 50 pips, and the other trades for 100 pips... regardless of the lot size I trade, I limit my P/L to 2%. Now, whether that 2% will be made/lost in 25, 50 or 100 pips is 50% based on my accuracy in judging the momentum and direction of the moving market and 50% my accuracy in judging the volitility in that same market.

If you are losing 4x as much dinero in a position thats 4x your standard, you really should stop and read a bit on money management and size positioning. The two fit together like a masterlock and key. This is where limiting losses comes into play. I can take any person... ANY person.. And in one hour or less, teach them enough about capital management, that if they can be successful in just 52% in all their market-directional decisions... They will be wealthy. Heck, If you make the carry trade on every pair, limit your loss to 1% per pair, and place your TP @ 1%.. statistically, the Law of Averages says you would have been 50% correct... That is.. 50% of your trades would have 'won'<(man I hate using that word). Plus, you would reap all the interest from EVERY trade, regardless of W or L.

Ohh yeah, I'm new here... And my introduction. My name's Dustin, I currently live in Kentucky... My SN is Youngmogul86 everywhere I go. I trade to pay my car payment/mortgage. I have a fulltime job as a forklift operator.. And spend every other second on Oanda.. (My broker of choice) Im currently testing my accuracy with a 'high risk' account which I risk 3% per trade. Im addicted to trading-related propaganda (books) and have too much knowledge about finance to be 24. I've made and lost 200k before I was 23... Then decided to get serious about my trading endeavours. I now make 12-16% a month which covers my main bills.. and I don't 'shoot for' any number... I 'shoot for' accurate or well thoughtout trades that I can stand behind without emotion.

I know this wasn't the place for an introduction... will repost it in the introduction thread (i sure hope there is one ;p)

Welcome here, Dustin :-).. great post.