Have you ever been trading well and decided to increase the number of contracts you were trading? And, just as you increased the number of contracts you were trading, you started losing money on every trade?
To add insult to injury, your losing trades were done with more contracts than your winning trades.
All too often when we increase our trading size, we unconsciously alter our trading from the creative, effective trading at smaller size to ham-handed, tentative trading at larger size.
To be most effective, increasing your trading size needs to be preplanned and natural.
Your trading size should be increased when the market is rewarding you and decreased when the market is not rewarding you.
To assure that increasing your trading size is natural, you should have a strategy for adding and decreasing contracts clearly outlined in your trading plan. I advise even new traders to have a strategy for adding contracts in their first trading plan.
As an example, you could decide to trade your base position, ten contracts, until you are up 30 ticks per contract in a day - at which point, you would trade the next size increment, fifteen contracts. You would trade the increased size, fifteen contracts, until either the productive part of the day ended or your P&L dropped below the 30 tick per contract threshold - at which point you would revert back to trading your base size, ten contracts.
Reverting back to your base size once you fall below the threshold for increasing your size is very important.
Too many traders increase the number of contracts they trade when they are being rewarded and do not reduce their contract size when their P&L drops below the preset level.
Don't let your ego prevent you from reducing your size. Staying with increased size when the market is not rewarding you is tantamount to falling on your sword.
Now, for what traders in my Electronic Trader Mentoring Program call Jeff Quinto's "V".
Think of the shape of the "V".
Start your trading each day with your base size represented at the middle of the "V". If you lose money, you reduce your size, as if you are going toward the narrow bottom of the "V". However, as your profits build during the day, you should increase your size as if you are moving toward the upper, wider part of the "V". If you think of my "V", it will help you conceptualize adding and subtracting contracts as the market either rewards you or penalizes you throughout the trading day.
Using the "V" to exploit winning days and reduce losses on losing days is one of the concepts I teach traders in my Electronic Trader Mentoring Program. You can find out more about the program by going to www.JeffQuinto.com.
Wishing you success with your trading, Jeff
Copyright © 2009 by Jeff Quinto, all rights reserved
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