add to a losing positon
- Thread starter otherguy
- Start date
Exactly. If you edge is some sort of general market condition, but doesn't have very precise entry points (for instance), then the market can move against you pretty well - and adding to losers might well make sense (provided one still bails when the general market conditions change).
Trading has such a wide scope that few rules are absolute. One should carefully consider advice to see if it of value to them. What may turn one trader from just breaking even to turning a profit, may well destroy another's account.
I agree with the poster who said most of what is said here so far is a bunch of cliches. Never add to a loser is a cliche because a loser isn't a loser until you realize it and the same can be said for a winner.
If you make perfect entries and go "all in" with every entry and are profitable - then congrats. You know what you are doing and can tolerate risk better than I can.
I assume neither my entries nor my exits are perfect and I adjust entry and exit size accordingly in both directions whether it be RED or GREEN. The difference is I know when to admit I am wrong and accept the loss.
This thread should be titled "When to accept a loss" which in my opinion is a personal risk and cannot be spread across different individuals.
Mike
If you make perfect entries and go "all in" with every entry and are profitable - then congrats. You know what you are doing and can tolerate risk better than I can.
I assume neither my entries nor my exits are perfect and I adjust entry and exit size accordingly in both directions whether it be RED or GREEN. The difference is I know when to admit I am wrong and accept the loss.
This thread should be titled "When to accept a loss" which in my opinion is a personal risk and cannot be spread across different individuals.
Mike
This is the way i proceed:
· Open a trade
· Put a stoploss
· Take profit or get stopped out
You can add to your position, but always respect the stops.
In this discussion those who add to losing trades never spoke about a stoploss.
I personally know 2 persons who added on losing positions:
One in 1993 traded Forex, the second one traded S&P futures in 1995. They lost each over 10 million dollars by âmanaging their loss through adding positionsâ.
They both got stopped out of their positions when their accounts were at zero.
There are many ways to trade and in each method there are winners and losers:
· Adding to losing positions
· Throwing darts
· Letting a monkey decide what to do
But I prefer to maximize my chances and minimizing the risk. But who am I?
About the monkey: this is no joke, there is a gorilla that has his own website where his trades are followed.
http://www.beursgorilla.nl/tipsall.htm
In 2004 the Dutch stock index AEX rose 3%, the gorilla did better with 25% return. Five years in a row the gorilla beats the index.
So it should be clear: buy a gorilla.
· Open a trade
· Put a stoploss
· Take profit or get stopped out
You can add to your position, but always respect the stops.
In this discussion those who add to losing trades never spoke about a stoploss.
I personally know 2 persons who added on losing positions:
One in 1993 traded Forex, the second one traded S&P futures in 1995. They lost each over 10 million dollars by âmanaging their loss through adding positionsâ.
They both got stopped out of their positions when their accounts were at zero.
There are many ways to trade and in each method there are winners and losers:
· Adding to losing positions
· Throwing darts
· Letting a monkey decide what to do
But I prefer to maximize my chances and minimizing the risk. But who am I?
About the monkey: this is no joke, there is a gorilla that has his own website where his trades are followed.
http://www.beursgorilla.nl/tipsall.htm
In 2004 the Dutch stock index AEX rose 3%, the gorilla did better with 25% return. Five years in a row the gorilla beats the index.
So it should be clear: buy a gorilla.
Monkey Business
Jacko is a popular Dutch investment analyst who, since January 2000 when his portfolio came into his existence, has beaten the broad Dutch stock index for four consecutive years and outpaced the DJIA and Nasdaq by over 25%.
And he has not just outperformed the indices but top stock market analysts as well. Every year, five well-known Dutch analysts pick their five favorite stocks for the next twelve months. The analystsâ picks regularly brought lower returns than Jackoâs selection.
While those results are notable, they are all the more so when you consider that Jacko is a gorilla.
Jackoâs portfolio consists of ten stocks; every two weeks, he sells one position and buys another by picking one of 75 numbered bananas that represent various Dutch stocks. His performance is tracked on a web site, regularly reported on in the Dutch media, and communicated to the 30,000 plus readers of his e-letter.
What started as a joke has become a phenomenon that draws more and more attention from what surely can only be termed desperate investors. Perhaps most remarkably, at least one bank in the Netherlands is seriously considering introducing a fund based on the gorillaâs picks. According to one bank executive, âBeating the major stock index for the fourth consecutive year can no longer be called coincidence.â
There are several lessons we can take from this story: (1) Most investment managers and mutual funds charge too much for the performance they deliver; (2) Some people will believe anything; (3) Some mutual fund sponsors are opportunistic idiots and, finally, (4) Be sure to double-check the species of your mutual fund manager before investing.
Jacko is a popular Dutch investment analyst who, since January 2000 when his portfolio came into his existence, has beaten the broad Dutch stock index for four consecutive years and outpaced the DJIA and Nasdaq by over 25%.
And he has not just outperformed the indices but top stock market analysts as well. Every year, five well-known Dutch analysts pick their five favorite stocks for the next twelve months. The analystsâ picks regularly brought lower returns than Jackoâs selection.
While those results are notable, they are all the more so when you consider that Jacko is a gorilla.
Jackoâs portfolio consists of ten stocks; every two weeks, he sells one position and buys another by picking one of 75 numbered bananas that represent various Dutch stocks. His performance is tracked on a web site, regularly reported on in the Dutch media, and communicated to the 30,000 plus readers of his e-letter.
What started as a joke has become a phenomenon that draws more and more attention from what surely can only be termed desperate investors. Perhaps most remarkably, at least one bank in the Netherlands is seriously considering introducing a fund based on the gorillaâs picks. According to one bank executive, âBeating the major stock index for the fourth consecutive year can no longer be called coincidence.â
There are several lessons we can take from this story: (1) Most investment managers and mutual funds charge too much for the performance they deliver; (2) Some people will believe anything; (3) Some mutual fund sponsors are opportunistic idiots and, finally, (4) Be sure to double-check the species of your mutual fund manager before investing.
Good luck with that notion. I'd wear my lucky shirt if I were you.
Personally, I am of the view that a trader with relatively poor timing would best be served by waiting for the market to confirm his initial position before he increases his exposure. Otherwise, he is digging himself into a hole with little or no predetermined depth limit, and that sounds like a nightmare.
In my boring, limited and conventional view, I think that people who add to losing positions have a desperate need to do something, anything, when things are going wrong...short of admitting that they may have made a mistake.
In your first part I'd say that timing isn't really very important and testing an entry point with samll size is.
In your second part I think that certain failing traders deperately need to do something and this is an emotionally based decision making process not a logical/rational process.
I'll give and example. Suppose I buy into strength with small size and the price immiadiately drops 10-20 cents. Already I am thinking that I made a mistake and at this point I am looking to recover gracefully from this mistake. The price stabilizes and looks to be moving up slightly again. I will probably add more size even though I am below my entry - I've just added to my "losing" position. The price tests my initial entry again and doesn't continue up. I get out a small loss or occasionally B/E.
I've added to a loser but my goal was to recover from my mistake with minimal funds lost. The nature of the price movement wasn't drastic (otherwise it would have taken out my .30-.50 cent worst case stop fairly quickly on just my initial size). In this case the price action allowed me to minimize the cost of this mistake.
Lets take a look at golf as an example. Pros make just as many mistakes as newbs. Its a fact, the number of mistakes stay constant but the recovery from mistakes and the severity of the mistake is what separates the pros from the rest.
I am wrong often - sometimes more than 50% but that's okay. I admit when I make a mistake quickly and easily and work on recovering from it rather than just being a passive loser.
Think about this very carefully - by letting your fixed worst case stop take you out you are being a passive loser! You are not admitting that you made a mistake right off the bat and you are just giving away money! Yes this has a lot to do with pre-emptive stops and that's entirely my point. A pre-emptive stop is an immiadiate acknowledgement of reality. Also, I would speculate that most MM's know exactly where most retail traders place thier stops. Poor stop placement is just as much a mistake as taking a poor entry or not honoring your stops at all.
I'd be unsurprised to learn that the vast majority of "DoubleDowners" do exactly that. It is pretty amazing how strong an idea can be. Why just today, I was pretty confident we'd bust thru 1180 for a new HoD, and even let my stop slide a tick only to bail at 1178.25. If I had doubledowned at 78.25, I woulda taken a Break-Out-The-Whiskey sized loss.
There's a chat room that I've been in for years, and every so often we get a DoubleDowner. They seem to last about 6 months or so, then fade away. Sometimes it gets so bad, I'm forced to leave the room - these guys can be scary when they fade an all day trend. I'm tempted to lobby the roomop to keep this stuff to a minimum.
But I suspect there are profitable strategies that do add to losers, and I am very reluctant to say that it is always a bad idea.