Position Size Reduction During Drawdowns

Tue Dec 13, 2022 4:55 pm

Hi Traders,
I have a question to you: Did you ever came across the system/theory reducing a position size according to the size of the drawdown?

Let me try to illustrate what I mean.
Let's assume that I created a profitable strategy with the max drawdown 15%.
Although I am able to handle this kind of drawdown, I still want to have a bit of the break when trades will not go into my favor by reducing my position:

Potentially it could look like:

Max backtested Drawdown 15%

Drawdown up to 5% = risking 1% of my account

Drawdown 5% - 10% = risking 0.5% of my account

Drawdown 10% - 15% = risking 0.25% of my account

Drawdown > 15% = strategy stop

It will break loses the same way as it will slow the recovery, still it can smoothen the equity curve over years.

Let me know what do you think about it or if this is widely known model and I only failed to find it on the internet

Happy to also get any resources to study about the topic

thanks upfront!
have a good trading!