Great posts guys, thanks for all the input.
I once wrote half-jokingly on the top of my 'rules to trade by' list that trading was the business of taking losses. I've come a long way since then in most aspects of my trading, but this is still the one overarching rule that needs to be dealt with in a more systematic manner.
I wish I could open every position knowing exactly how much I would lose (guys at IB -- possible to have automatic stop-loss orders sent immediately after a position is open?), but the problem I encountered is that with the type of trading I'm doing now, I've found that the majority of the times I am better off adding to my position when it goes against me, so it makes me lax in handling my first entry. Nothing like the idea that an open loss gives you an excuse to double down to really blow the risk parameters out the window -- I know this can't last even if I consider every entry as just a half-leg in.
So what I'm working on now to maintain that stop discipline is the following: put hard stops in on every entry; then, if I am stopped out and the market goes even further in that direction to the point where I would have doubled-up, I will re-enter with a double lot. If I get stopped out again, and the price moves even further, I will repeat for a triple. Any trade re-entered at a worse price than my prior entry will remain a single lot. Not sure if getting a better avg price with additional cost of spread/commissions outweighs the number of missed opportunities from a tighter initial stop (tighter than none, I should say), but at least discipline will be maintained throughout, and there will be no room for hope or wishful thinking on my part.
For all you addicted to averaging down, perhaps you can give this method a shot; might be a good way to deal with situations where you have the attitude of "the lower it goes, the better the buy" and v/v. Think of the doubling down as a privelege for having the discipline to be stopped out on every trade. Thoughts?
I once wrote half-jokingly on the top of my 'rules to trade by' list that trading was the business of taking losses. I've come a long way since then in most aspects of my trading, but this is still the one overarching rule that needs to be dealt with in a more systematic manner.
I wish I could open every position knowing exactly how much I would lose (guys at IB -- possible to have automatic stop-loss orders sent immediately after a position is open?), but the problem I encountered is that with the type of trading I'm doing now, I've found that the majority of the times I am better off adding to my position when it goes against me, so it makes me lax in handling my first entry. Nothing like the idea that an open loss gives you an excuse to double down to really blow the risk parameters out the window -- I know this can't last even if I consider every entry as just a half-leg in.
So what I'm working on now to maintain that stop discipline is the following: put hard stops in on every entry; then, if I am stopped out and the market goes even further in that direction to the point where I would have doubled-up, I will re-enter with a double lot. If I get stopped out again, and the price moves even further, I will repeat for a triple. Any trade re-entered at a worse price than my prior entry will remain a single lot. Not sure if getting a better avg price with additional cost of spread/commissions outweighs the number of missed opportunities from a tighter initial stop (tighter than none, I should say), but at least discipline will be maintained throughout, and there will be no room for hope or wishful thinking on my part.
For all you addicted to averaging down, perhaps you can give this method a shot; might be a good way to deal with situations where you have the attitude of "the lower it goes, the better the buy" and v/v. Think of the doubling down as a privelege for having the discipline to be stopped out on every trade. Thoughts?
