Size, of course, does matter

Posted on May 16, 2006
Tags: Trading Plan |

Dr. Brett Steenbarger has written a very good post on his TraderFeed blog on one of the psychological pitfalls of trading - size.

Large changes in trading size lead to outsized gains and losses and departures from prudent risk management. These large emotional swings are processed by the mind in a manner similar to psychological traumas, creating very negative (and difficult to change) conditioned responses (different in degree, but not kind, from post-traumatic stress reactions).

My heartfelt message: Treat size with caution. Increase size incrementally, ensuring that trades don’t feel different when you enter and manage them. The best treatment for trading psychology problems is preventive medicine.

Self-Inflicted Problems of Trading Psychology

I increase the size of my risk by small increments, quite infrequently and with more emphasis on the psychological impact than the P&L one.

Comments

3 Responses to “Size, of course, does matter”

  1. John on May 17th, 2006 11:53 am

    Eyal,

    Size does matter. Check out this funny clip http://www.mulletpoetry.com/2006/05/15/bulge-in-public/

  2. eyal on May 17th, 2006 2:31 pm

    Hehe funny. Interesting that most of the people they showed staring or taking note were male rather than female.

  3. John on May 17th, 2006 2:55 pm

    :)

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