- On the subject of bet size, if you plot performance against position size, you get a graph that resembles
one of those rightward-facing, high-foreheaded cartoon whales. The left side of the graph, corresponding to relatively small position size, is nearly linear; in this range an increase in trading size yields a proportionate increase in performance. But as you increase size beyond this range, the upward slope flattens out; this is because increasingly large drawdowns, which force you to trade smaller, inhibit your ability to come back after strings of losses. The theoretical optimum is reached right about where the whale’s blowhole would be. To the right of this optimum, the graph plummets; an average position size only modestly larger than the
theoretical optimum gives a negative performance - Trading size is one aspect you don’t want to optimize. The optimum comes just before the precipice. Instead, your trading size should lie at the high end of the range in which the graph is still nearly straight.
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