Garrett Drinon of SMB Capital (used with permission):
“How do you determine when to increase the risk per trade on your model?”
A great question that deserves an entire book to address properly, but here is the short version.
Most traders increase their size too quickly.
There’s no rule that says you have to scale up all at once – do it over weeks or even months.
Make sure you’re set up to view your performance in a way that’s normalized across your sizing.
That is, if you’re only looking at raw P&L, then it’s going to be heavily skewed toward the trades after you increase your size.
The important thing to avoid is sizing up enough such that normal losing trades push your equity curve into negative territory.
That can be demoralizing and unnecessarily puts you in a position to make mistakes.
Thanks for the question, Garrett!
We’ll have a podcast episode on this topic in the future, no doubt.
