Original question: Do you trade smaller when you notice your trades are not working out as they used to?
Not an easy one to answer.
Altering position size based on portfolio issues is generally a flawed approach. I have touched the theme here in this article about proper position sizing. Position sizes should always be a function of the charts. When you reduce position size based on your drawdown or losing streak you mute further drawdown potential but you’ll also mute recovery potential. You are also forced to react from a position of weakness, which is bad practice according to my belief. Now you have to get the timing right for both cutting size and then readjusting back to normal size when things are normal again.
If you would possess that timing ability you could make better use of it by simply not engaging with trades until proper setups show up again. Learning to pull this off is a serious skill and reducing size so that you can continue to trade won’t allow you to accumulate quality practice for that skill. It’s a major part of my own trading and one of the main goals of our Stock Ideas Membership Service.
Here’s a a good place to start learn proper market timing!
I believe that trading small, or even very small, sizes when the market is dull is a deeply flawed approach, as it does not help you do the right things, quite the opposite! I only reduce size when I test a new setup in real trading or on rare occasions when I have to fight severe boredom.
But, it can be a valid safety net for sure if you are prone to overtrading and simply can’t handle it any other way. Any strategy that helps keep your account from spiralling into a drawdown that is difficult to recover from is sensible, because the stock market can be the meanest place on earth if you are not humble enough.
But*But, in that case it would be better to follow sound protection rules and go with a lower maximum risk per trade to avoid running into serious trouble in the first place.
If your drawdown is already so large that your mental barrier begins to crumble (you can’t trade without that barrier!) you can try to follow the tips in this Q&A here: I experienced a huge loss, how can I cope with that?
You can always simply reach out via mail directly: stocks(at)thweis.com
I will always have an ear and hopefully a good advice for anyone calling for help during dire times. After all I lost 75% of my initial 10k stake during my early years myself. This wasn’t a small amount of money for me as a student in my mid twenties. I saved every penny for 3 years and saw it being eaten up by a myriad of stop loss hit. Painful memories indeed. But I now know that it can get much more serious when someone has to not only take care of themselves and trade with money they can’t afford to lose.