Adding to positions

J

Jake777

Hi.

I guess I'm a swing trader. I hold positions from just days to even months. Right now, I am long a stock that is making very good gains. But I feel that I did not do something well. That is adding to my positions.

I have a question. What is a good rule when trying to add positions? What's a good way to add to winning positions?

Thanks in advance for all inputs and comments.

Jake
 
I'm anxious to see how ET members respond to this, the most I have to offer is that one should probably have planned in advance where or when to add to a position.
 
Quote from Jake777:

Hi.

I guess I'm a swing trader. I hold positions from just days to even months. Right now, I am long a stock that is making very good gains. But I feel that I did not do something well. That is adding to my positions.

I have a question. What is a good rule when trying to add positions? What's a good way to add to winning positions?

Thanks in advance for all inputs and comments.

Jake
More...

If you're a swing trader, then you add to a position only when there is a pullback to support and volume lighten ups nicely on the pullback. The chart must remain intact as it did when you first bought the stock for a swing trade.

You're not a momentum trader, so you do not add simply because it is strong.

If you want to truly incorporate pyramiding up to your style, you should go back to your past trades and see if this would have truly benefited your P&L. This is where an analysis spreadsheet of all your past trades proves to be invaluable.
 
Yes, you're right, rlb. Planning is very important.

I watched this stock for months (literally, every tick), and when it finally broke out, I felt good. Entering the trade was done well, I think (well, I think I did it well, but maybe some people think they could have done better). I bought on 40% retracement, and I got near the bottom of the retracement. I made a big enough bet, so I am doing well right now.

I envisioned the stock breaking out again after a brief consolidation. The stock did break out again. My thoughts were confirmed by volume. I figured that there would be a retracement. There was, but not enough to hit my bid (it missed my limit order by 5 cents). Then the stock took off again.

I guess my poor planning is where I didn't plan for the possibility that the stock would rocket off, and not hit my limit order. I probably should have gone market and just added my position.

I'll be sure to plan better next time. I guess my pessimistic personality stopped me from thinking that the stock would go so well in my favor. All I thought about was what I would do if the position went against me. O well. But I guess I did one good thing, because I'm still holding my entire position, and there is enough volume there for this stock for me to get out, without breaking down the price too much.

Geeze. Today it's going up again, on good volume. Will wonders ever cease.

Thanks for the input, rlb. You're absolutely right. Planning is very important.

Jake
 
Thanks for your comments.

I agree with you. I want to add to positions on pullback. But the thing is, sometimes stocks just do not pull back.

I shorted this stock a while ago, and I really wanted to add to my position. It never gave me a chance. I mean, it literally went down 10+ points without ever retracing. It was ridiculous. This was a 20-30 dollar stock, for chrissakes. I did study my past trades and P&L. additing to that position would have really changed my P&L for the better.

I guess I need to know when the stock is not going to give me a chance to add to my position, as opposed to when a stock will give me a chance. That's what I would like to know - how can you tell? Momentum indicators? I hate those things, though - first of all, I can't figure em out and secondly, I don't ever use them. All I use is bars and volume. Hell, I don't even use moving averages.

I would really like to hear some input about this. Thanks for the reply, discipline.

Jake
 
1. Add to postitions if they move in the expected direction
2. Buy increasingly smaller amounts of shares rather than equal or larger amounts: if there is a subsequent pullback you stand a better chance of having a profit.
 
Quote from Jake777:


... I want to add to positions on pullback. But the thing is, sometimes stocks just do not pull back.

...I guess I need to know when the stock is not going to give me a chance to add to my position, as opposed to when a stock will give me a chance. That's what I would like to know - how can you tell? Momentum indicators? I hate those things, though - first of all, I can't figure em out and secondly, I don't ever use them. All I use is bars and volume. Hell, I don't even use moving averages.

Jake
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Jake777:

Since stock prices do not travel in a straight line, there are always going to be pullbacks (at some level of time frame). That being said, it then becomes an issue of your defining the criteria on the retracement that would warrant an accumulation to your existing position. Sometimes price will pullback but just shy of your condition for entry of additional shares before price takes off again. That’s okay, IMO. Play around and back test different pullback scenarios with multiple time frames.

I don’t think you can enter a trade knowing if the stock is or is not going to give you a chance to add. Just let the market unfold. As rlb21079 said, do plan in advance. If the market offers you the chance, great, you go ahead and add. If the market does not offer it this time, at least you still made money on the trade with the base position. There will always be plenty of other opportunities to pyramid, perhaps with a different stock and/or at a different time.

Kermit
 
Quote from Jake777:

Thanks for your comments.

I agree with you. I want to add to positions on pullback. But the thing is, sometimes stocks just do not pull back.
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If they don't pullback, usually they won't be good low-risk entries. And it happens.

I shorted this stock a while ago, and I really wanted to add to my position. It never gave me a chance. I mean, it literally went down 10+ points without ever retracing. It was ridiculous. This was a 20-30 dollar stock, for chrissakes. I did study my past trades and P&L. additing to that position would have really changed my P&L for the better.
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You misunderstand. Obviously adding to that winning position would have increased your profit. But often times, you'll find that you've added to an overextended stock which may eat away at your original profits when it pulls back or u get stopped out. You have to go thru your spreadsheets for this.

I guess I need to know when the stock is not going to give me a chance to add to my position, as opposed to when a stock will give me a chance. That's what I would like to know - how can you tell? Momentum indicators? I hate those things, though - first of all, I can't figure em out and secondly, I don't ever use them. All I use is bars and volume. Hell, I don't even use moving averages.
More...

The answer is right in front of you. Taking this example, you said the stock never pulled back. Then it never gave you the chance to add. Watch the price/volume on a pullback, and add if you would already make a buy per your original strategy.

Most likely the reward will have dinimished with the runup even with the pullback, so even if you do add to positions, the proper money management would be to add a smaller quantity, not to pile it on haphazardly.

If you knew exactly how much a stock was gonna run, when it was gonna stop pulling back, you wouldn't need any kind of money management. But no one does, thats why money management is key.
 
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