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At the current stage of my trading journey, I have come to embrace a dynamic position sizing approach as one that best dovetails with my personality, as opposed to using concepts like R and the R-multiple which imply a certain predetermined risk per trade idea or entry. Having given this brand of trading a decent shot, I recognise that while such a systematic approach surely has its advantages, time and time again I have found it to be a massive hindrance to my ability to fluently express my market views on the charts. Less quantifiably, an artistic element to my trading seems to have gone missing, and time on the charts feels insipid and dry – I don’t mean this in the sense that I crave the adrenaline rush or dopamine hits, which is why risk controls are needed in the first place.

Example: Warming Up

It might be better conveyed with an example. I like the idea of having a “warm-up” trade, an initial lot size that is a fraction of my true risk assigned to a certain trade idea. This is to deal with inertia or performance anxiety as and when it may surface, such as after a weekend or time away from the markets.

Example 2: Fear of Missing Out (FOMO)

Similarly, sometimes I let myself take a “FOMO” entry with a much smaller position size before coming in with my true risk – this is best explained by the simplified diagram below.

In Scenario 1, based on a higher time frame I have a bullish view and am looking for initial signs in line with that. The “proper”, “safer” and more disciplined approach would be to “not chase price”, and wait for price to exhaust or pull back to a reasonable demand level of better value, and place your order there. This is great advice, I definitely do not discount the merits of following this logic. However, this approach also assumes you will only enter once with your fixed “R” trade. If price does not pull back to your level and takes off without you, you are left waiting for the next entry. Even if you decide to wait for price to return to that level, the entire thesis might have already changed. Goodness, what a test of patience that can be, especially in situations where one is not always available to take trade setups as and when they arise (perhaps due to working a full-time job, or having many commitments that limit chart time), or if a trader prefers a high win rate strategy that necessitates many conditions that need to met, meaning trade setups come by less frequently.

In Scenario 2, tiny initial buys are executed as an expression of the long bias, even though these are not at an area of value. I mean, that’s what happens when you FOMO. When price does retrace to my true demand area, however, I go in with a much larger position. The logic is as such – if price does not retrace, at least I have been able to express my market view with my initial baby buys. Conversely, when price pulls back, this does not surprise me and I basically build a position.

Of course, it is implicit in both scenarios. that I know very well where to exit the trade if I am wrong – in other words, yes I have a bullish view on price, but I also accept that the market can do what it wants. My overall risk is still pre-determined, and the very least I can do is to have an emergency stop in place where it just makes sense to close the trade of price does trade to that area.

In essence, having the flexibility to tailor my trade sizing to the circumstances and factoring into consideration my very human configuration has allowed me to come into the markets more relaxed. I am embracing my emotions and trading alongside them, rather than seeking to completely suppress them. All in all, a much more pleasant and organic conversation with the markets, which tends to lead to better outcomes.

Trade Example: 26 September, Monday on EUR/USD

Here is a brief example of this in action. The pair below is the EUR/USD on 26 September, Monday. In the first image below, this is the 15-minute chart where price is in a clear downtrend. In fact, that morning we had a surge of dollar strength as the market opened after the weekend, which caused that large push to the downside during the Asian session (around 0830h GMT+8). Given that this is a seller’s market, I am naturally keen to join in for shorts, but would prefer to do so at an area of value. The pink rectangles below are areas where I would be keen to trade continuation sells. They were chosen because these were zones where sell orders seem to have been placed that caused price to break previous lows and make new lows.

Based on my reflected experience, I notice initial signs of price wanting to trade higher. I see price heading to my sell zones before continuing down. Of course, longs would be heavily countertrend and much riskier to take. But at this point I’m reasonably certain that price would make an attempt for those ideal sell zones where I could also come in with my sells. Why not partake in both, the countertrend move up and the pro-trend move down? At this point, it’s clear some sort of FOMO is bubbling, and I know how frustrated I will be if I wait for the perfect entry model only to see price just take off – this might affect my patience for the next trade setup I analyse. It’s also a Monday, and I’m feeling rusty after a fun weekend. I’m aware that seeing a predicted move play out may compound my inertia when it comes to trade execution. At the same time, it’s such a rookie mistake to “chase price”. So what do I do?!

Per the second image below, I execute a FOMO/warmup trade at an obviously suboptimal entry point. Price retraces, which doesn’t surprise me, and I enter the market with a much larger position size. Price shows more bullish intention, and I add more. Price heads higher. I am gleeful, not because my trade is winning but because I feel in control, and I know exactly what I am doing and why I am doing it.

It is worth noting that my targets were dynamic as well. I was nimble to close my earlier and less advantageous “warm-up” and “FOMO” entries at initial traffic areas rather than swing for the fences for the entire position. In other words, taking “partials” is the whole essence of this dynamic approach. But the best part? My psychological capital was well-preserved. I was so energised from that trade even though I did end up missing my main predicted move. I was ready to be all patient and disciplined in assessing subsequent trade opportunities.

Of course, this preferred style of trading is something I’ve concluded only after voluminous trial and error, as well as self-auditing. Others may disagree, and they are not wrong as well. Maybe FOMO or performance anxiety are emotions that affect me disproportionately, and I have to deal with them against the context of the market in my own unique way. At the end of the day, I strongly believe that whatever trading strategy you use needs to be as personalised as possible. Wouldn’t it stifling and artificial to take on someone else’s trading style wholesale, when that was a result of their own past reflected experience in the markets?

I’m also just not a fan of trading systems that try to eliminate human error. Otherwise, a (human) trader might as well employ trading robots and expert advisors (EAs). I do find that the best traders and investors have some sort of flow with the market that can only follow from a well-developed intuition, usually from experience that has been deeply dissected and reflected upon. This sort of dance with the markets, I doubt a robot or algorithm can replicate. Why try to trade like a robot when you can just trade as yourself and embrace or even weaponise your human tendencies? Just some thoughts I could develop further.