When are you trading too big?

Recently, while heading outside for a trading break, a developing trader stopped me near the elevator.  He gave me a progress report on a new strategy that he was running.  I love it.  It is unique.  He has backtested the strategy and it has edge.  No one else on the desk is trading it.  I have encouraged him to trade it bigger.

The trader updated with disappointment that he was not comfortable at the size he was trading this new strategy.  He was letting trades run against his stop.  He was uncomfortable holding winners.  He was trading the strategy differently than he had in the past, where he had success.

When you are trading a strategy differently than a prior level with edge, that is exactly when you are trading too big.

I asked the trader where he felt comfortable trading the strategy.  He shared, “1k of trade risk.”  I recommended he go back to that point and come find me in two weeks.

From there, we will discuss a plan to trade bigger.

From where he was today, he was trading too big.

As always, I welcome feedback and questions at [email protected].

*no relevant positions