For this TastyBites, Tom and Tony discuss trading size consistency. With limited capital, one of the significant risks for a tastybites trader is taking a massive loss before making enough profits to recover their portfolio. The key reason is inconsistent trading size.
As an example, they look at a mechanical 1SD put selling strategy. We managed winners at 50% of maximum profit, and losers at twice the credit received. Since the time of a loss cannot be predicted, the portfolio can be hurt by a loss when a bigger than usual trade is executed. If enough of these unexpected occurrences happen, it will make the account have a much more difficult time bouncing back.
On the other hand, if the size were kept consistent, the loss would be much more manageable. Consistent sizing will allow for gains and losses to offset each other more efficiently. Without consistent sizing, we may have very favorable probabilities with an overall profitless strategy.
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