Adding contracts to a small losing position

[EMini-Player]

Quote from donaldduck3419:


just out of curiousity, if your stop is 10 pt, whats your profit goal?

On the YM, about 20 pts.

More contracts shouldn't be added just because it's a losing position. 1 Contract would only be added if all the reasons that got you in the trade were still valid and present.

Thanks for your thoughts. I will stick to a single position size on my real trades while I try this theory out on the simulator.

-FastTrader

 

[donaldduck3419]

Quote from Fast_Trader:


On the YM, about 20 pts.

More contracts shouldn't be added just because it's a losing position. 1 Contract would only be added if all the reasons that got you in the trade were still valid and present.

Thanks for your thoughts. I will stick to a single position size on my real trades while I try this theory out on the simulator.

-FastTrader

your welcome, hope it helps.

 

[FinStat]

do yourself a favor.......don't add to a loser.....it's tempting.....don't do it.

it is a leading cause of financial disablement.

particularly bad if you do it once or twice and it works out.......

 

[tntneo]

Quote from AAAintheBeltway:
We have had this discussion several times here and it usually produces a spirited debate. The two camps are pretty clear. One side says NEVER add to a loser. The other says scaling is ok, as you cannever nailk the entry exactly.

There is one situation where I will double up a loser. I got this technique from the book, West of Wall Street, which is old and not that well written but it kind of pulled a lot of things together for me when I was getting started. Say you put on a trade and it goes against you but the market has a lot of chop. Wait until it's almost at your stop, then double up. If you hit your stop, blow them all out. Now here's the key. If it goes your way, get out at breakeven on the double position. The trade has already told you it was shaky by going down. All you want to do is breakeven. You're not risking that much on the additional cars and you've greatly increased your chances of a breakeven. But don't push your luck. Another key is to avoid the temptation to double up too soon. I don't do this often, but it can save your day.

you were right about the thread.

regarding the scaling, I do something similar.
a possible key to understand : treat each scale as a different position.
it's not about averaging then, it's about placement and S/R. and the actual S/R is decided by the market not your strategy.
anyway, indeed, don't do it without a very clear plan, don't modify your exits and stops for the already existing position.
and if it does not work for you, don't do it at all.
however, those lecturing others about the evil of scaling, should remember that many doing size do scale and have no choice. so you can make it work.

 

[lesprit]

Fast Trader,

Here are two personal averaging scenarios which I have used, one successfully and one dismally.

1. I'll often trade NYSE big cap stocks. Sometimes I'll see the SP's starting to rally and start buying some big NYSE names. All fine and good until the specialist sometimes magically drops the bid. I'll see some offers come in- scared money probably, especially since the SP's are still holding up. I will then lower my bid along with the specialist to average into a bigger position. As long as the SP's hold up, I've averaged a great stock position near the bottom of a move; and when those weak sales get mopped up, the stock will rally. Then I add to the position as it rallies. Then high bid it to see what's out there order-wise. Later, I can scale out all the way up. Note that the position is keyed to the futures; once futures fail, I'm out win or lose. This averaging strategy works for me on balance. When it doesn't, run very fast or it gets ugly fast since you've pyramided your position.

2. Here's the dismal one. I studied correlations between the Nikkei and Taiwan MSCI traded on Simex against the Hang Seng on the HKFE. One afternoon, I shorted the Hang Seng since Taiwan and the Nikkei were weak. The Hang Seng began to rally- not much though. So I shorted it again since the other markets were falling (surely the Hang Seng had to fall in sympathy, I thought). My emotions were business-like until the Hang Seng suddenly exploded upward in fast market conditions. Now I was cooked, and with a doubled up positon. I began trading around the position a bit, but it kind of ruined my afternoon.

The problem is unless you are prepared to add to your positon for or against you, it will eventually kill you if you do it unidirectionally- that is, only when the market moves against you. Think about it. You're adding to something which probability does not favor (a losing position); and you're not adding to something which probability favors (a winning position). That is a recipe for eventual financial ruin, and worse- you may lose your nerve.

But you sound as though you have already made up your mind.
So best of luck to you and enjoy your weekend.

Respectfully,

Lesprit