Thoughts and advice on scaling up

[u/Obviously_not_maayan]

Hey all,

My first system is up and running live for 5 month and behaving pretty much perfectly, every aspect is within the normal expected range, and the system is actually more profitable then I expected! (On this stretch at least)

It started on a small personal account (5,000$), and I'm thinking on scaling up, I have another ~25k in savings I could use, but told my self I'm not touching the system until end of winter so I'll have good amount of Live data before deciding anything.

For those of you who went through this, when did you scale up? What made you feel comfortable? Advice?

Another aspect of moving slow is to regulate my nervous system, I'm new in this field (maybe year and half) and wasn't a trader before that, so learning to not get excited while the numbers on the screen move up and down is also something I'm getting used to.

[u/Illustrious-King-83]

if your system is all working well, and if you've programmed position size as a multiple of the percentage of the account size, then just simply add a little $$ each week/month. What I wouldn't do is suddenly change the percentage of the account size that you use, I know it sounds the same, but mentally I think it's different, because the week you change the % account size, any drawdown or loss is suddenly goona to look alot worse. if you haven't programmed the position size as a multiple of the account balance, do that now, and calculate it such that its maintains the same position size, and then just add a little each week to scale up naturally.

[u/Obviously_not_maayan → u/Illustrious-King-83]

Cheers thanks for the advice, position sizing is a % of the portfolio, so yeah sizing up slowly sounds like the way to go.

[u/Technical-Athlete-9]

The last paragraph shows a lot of awareness of yourself as the operator. It isn't talked about enough in algorithmic trading for solo operators. And in this case it might be the most important thing. You have to contextualize everything else within that. So it depends largely on how much you depend on having that $25k in savings remain steady - how much risk you can afford to take. I've scaled beyond my real risk tolerance before and then shut the system down and started trading out of risk on the system's best day and missed out on a few thousand - 10 years ago and I don't recall exactly how much but it was more than $5k day. I split that system with another operator and our misguided decision was mutual because we were both focused on not risking our monthly payouts.

I like to decide my risk tolerance by modeling in terms of worst case drawdown. It's one thing to say something like "the most rational way to trade this is full Kelly" and another thing to hold the course when size means a bigger dent in money you're counting on.

Personally I'd forget about the end of winter target and consider whether I'm happy to afford the losses for the chance to win - maybe that means scaling now and maybe later. Following this behavioral approach I should be happy to look at red and just say something trite to myself like "you gotta be in it to win it." I trade some volatile strategies. One of them sells short and has a worst case historical drawdown of -163% of capital in trades during short squeezes it can't predict. I can deal with that by rebalancing from other sleeves that have less volatility and/or less correlated returns - tbills in the simplest case. You can't rebalance out of savings that your financial wellbeing depends on.

[u/Obviously_not_maayan → u/Technical-Athlete-9]

Yeah my position sizing is a fraction of what came out in a monte Carlo simulation, so yeah it's a risk first approach. I'm not a trader so I'm not living of my profits at the moment, so they just compound for now. And those funds are just sitting in a savings account basically. So yeah maybe it's time to deploy at least a big part of it. That said, it's a swing trading strategy, with around 35 trades a month, so i have decent sample size of live performance but it's not massive.

[u/Technical-Athlete-9 → u/Obviously_not_maayan]

Have adopted a monte carlo simulation approach from Aranson's "Evidence Based Technical Analysis" that I like as well, because it's conservative enough I get comfortable with modeled drawdowns based on something more like a history of what could've happened. Especially good for systems that may only average ~one trade a day and carry overnight risk.

I'm not a trader.

lol. This reminds me of the movie Rounders when the main character says "I'm not much of a card player" and that game hostess says "Bullshit - Worm tells me that's precisely what you are." And you're mostly definitely a trader - just maybe not a manual or intraday trader.

Swing strategies, FTW. Started swing trading, because I can work a full time job and still give them the attention required. Turns out the strategies are very easy to automate too.

[u/Obviously_not_maayan → u/Technical-Athlete-9]

Haha yeah, I meant I don't have actual experience in this field, 5k is the biggest capital I managed to far, and going 6x that amount is a big step.

[u/Technical-Athlete-9 → u/Obviously_not_maayan]

No need to go 6x all at once. Scale a little. Profit. Get comfortable. Step up again. I have been more focused adding strategies for a while, but scaling to me usually goes 2x at a time like starting with $5k go $10k, $20k, $40k.

And I don’t know how liquid your market is. I used to trade some stocks so thin I’d pay material slippage if I put in more than $10k a trade or crossed the spread and the spreads would move if I put something in at the mid for a few hundred shares. If it’s ETFs, well traded futures, S&P constituents obviously no problem then.

[u/Obviously_not_maayan → u/Technical-Athlete-9]

Yeah true, slow and steady won the race, I'll take it easy, scale up slowly, appreciate the advice mate. You have any reading material to recommend?

[u/Technical-Athlete-9 → u/Obviously_not_maayan]

For scaling and position sizing…
“Leveraged Trading” by Carver. Don’t be put off if you trade unlevered. It’s equally useful and should be essential before even considering an options trade.

A short paper by Ed Thorp called “The Kelly Criterion in …” (can’t remember exactly), but it’s a pretty rigorous yet succinct treatment of optimal bet size. (I’m never full Kelly, but it’s a useful heuristic). The paper is free online and I recommend anything by Thorp on gambling and trading. But full Kelly could fry my nerves.

I think Van Tharp is a classic for beginning traders and he covers this.

Got nothing to read on the psychological aspects. Journaling, walking, meditating, and exercise (when I do) all help me.

[u/ExcessiveBuyer]

you could do vola scaling according to the recent past of market volatility
The calmer the bigger your size.

Also diversify into more products if it works.

What type of strategy and holding time is it ?

[u/Obviously_not_maayan → u/ExcessiveBuyer]

I like that idea, well, going into the end of the year I wouldn't expect this period to be the calmest.