adding to winners.. valid or no?

dvrkbxy

dvrkbxy

Hey Traders, hope you are doing well.

I was wondering what you think about adding to winning trades and if you do this in your own trading. We all know the adage,"add to winners, cut losers short" but how and when do you add to a winning position? Of course, a 'winning position' is only winning in hindsight. I trade the ES and I'm sure you know how tricky ES can be, you can see lots of signs of a winning trade like a shift in delta and a decisive pushback from buyers/sellers, that could be your trigger to get in the trade. In your head, you have an idea of the best case scenario targets for where this trade can likely go.

Now this trade may go your way quite a bit, at which point you realize that given this new information of working more decisively in our favor, *this* trade is therefore more likely to be one of our better trades and therefore more likely to hit our further targets. Theoretically, you want to be your biggest size on your best trades, so you want to add to this. Here's an important point though, from the moment the market shows you something that convinces you to add, it can continue to work or it can still just reverse and crap on itself. But, you know you won't take a loss at this point because you have likely moved your stop up, so at the very least you know it is an 'OK' trade. At this point there are now two scenarios: The 'best trade' and the 'ok' trade.

Now that you have added your extra lot, it will add to your 'best' trades, however it will also HANDICAP your 'OK' trades. Because you need to give that extra lot some wiggle room and you will lose money on that lot when stopped. What if for example, 70% of our winning trades are 'OK' trades, and only 30% of our winning trades are our 'best' trades? Would it truly make sense to handicap profits on 70% of our winning trades, in order to add to the other 30%? The only way to know this would be to analyze the R:R of that one lot that we added, as if it were its own individual trade (which is only profitable 30% of the time, in our hypothetical scenario). And keep in mind that the general strategy we are trading may only have a 40% win rate. As many of my trades are intraday, it would be difficult to find the true answer. This complicates things greatly, and the points I stated have me wondering if it is truly valid that you should "add to winners" as opposed to just gradually moving up in size on your entries as you build the account.

For these reasons, I rarely have added to winning trades. I am experimenting with this now, but I am not yet sure if I believe in it. My intuitive thinking is that I'm lucky that I have any winning trades at all in this sea of complex scenarios that can work for or against me. Any random tweet from Trump or Draghi, Fauci, whoever, can move the market. Some fund manager is constipated today so he hits the sell button. You know, just chaos. So in my mind, starting from the moment I get a trading signal there is the most edge in that trade, and further in time from the signal, that edge decays exponentially as the domino effect that it predicts is exposed to more and more chaos which can disrupt it.

So if you took the time to read all that, thanks. I'm guessing not many traders care enough to think about this that deeply, but it matters to me. They will probably believe I'm overthinking but I don't believe that to be the case because the differences in how we manage trades can have dramatic effects on our P/L curve. Just curious how you feel about this?
 
If you want to be really good in this game, you HAVE to learn how to add to winners.

And the only way I know of how/when/where to add is to become a real expert on the price action because that's where the clues are. That's the good news. The bad is it takes YEARS to properly understand the price action.

A simple rule is to add 1/2 of your intitial position. And sometimes the market will give you another add so making your position double.
 
dvrkbxy said:
Hey Traders, hope you are doing well.

I was wondering what you think about adding to winning trades and if you do this in your own trading. We all know the adage,"add to winners, cut losers short" but how and when do you add to a winning position? Of course, a 'winning position' is only winning in hindsight. I trade the ES and I'm sure you know how tricky ES can be, you can see lots of signs of a winning trade like a shift in delta and a decisive pushback from buyers/sellers, that could be your trigger to get in the trade. In your head, you have an idea of the best case scenario targets for where this trade can likely go.

Now this trade may go your way quite a bit, at which point you realize that given this new information of working more decisively in our favor, *this* trade is therefore more likely to be one of our better trades and therefore more likely to hit our further targets. Theoretically, you want to be your biggest size on your best trades, so you want to add to this. Here's an important point though, from the moment the market shows you something that convinces you to add, it can continue to work or it can still just reverse and crap on itself. But, you know you won't take a loss at this point because you have likely moved your stop up, so at the very least you know it is an 'OK' trade. At this point there are now two scenarios: The 'best trade' and the 'ok' trade.

Now that you have added your extra lot, it will add to your 'best' trades, however it will also HANDICAP your 'OK' trades. Because you need to give that extra lot some wiggle room and you will lose money on that lot when stopped. What if for example, 70% of our winning trades are 'OK' trades, and only 30% of our winning trades are our 'best' trades? Would it truly make sense to handicap profits on 70% of our winning trades, in order to add to the other 30%? The only way to know this would be to analyze the R:R of that one lot that we added, as if it were its own individual trade (which is only profitable 30% of the time, in our hypothetical scenario). And keep in mind that the general strategy we are trading may only have a 40% win rate. As many of my trades are intraday, it would be difficult to find the true answer. This complicates things greatly, and the points I stated have me wondering if it is truly valid that you should "add to winners" as opposed to just gradually moving up in size on your entries as you build the account.

For these reasons, I rarely have added to winning trades. I am experimenting with this now, but I am not yet sure if I believe in it. My intuitive thinking is that I'm lucky that I have any winning trades at all in this sea of complex scenarios that can work for or against me. Any random tweet from Trump or Draghi, Fauci, whoever, can move the market. Some fund manager is constipated today so he hits the sell button. You know, just chaos. So in my mind, starting from the moment I get a trading signal there is the most edge in that trade, and further in time from the signal, that edge decays exponentially as the domino effect that it predicts is exposed to more and more chaos which can disrupt it.

So if you took the time to read all that, thanks. I'm guessing not many traders care enough to think about this that deeply, but it matters to me. They will probably believe I'm overthinking but I don't believe that to be the case because the differences in how we manage trades can have dramatic effects on our P/L curve. Just curious how you feel about this?
More...
%%
NO,NOT on 40% hit rate;
even though that could work real well with super trends like old turtle trends or 1st quarter /last quarter tech trends.
IBD newspaper like$ to add smaller, 2 or 3 times= 50% position,30%,20%;
that can work real well, with cash stocks.
But I like to take profits weekly more or less, so NO on 3rd time.
Besides, no or low commissions was somewhat of a game changer....................................................................................................Looking @ a tech derivative; 3 times add maybe worked better in 2017, but most year$ are not that smooth. More than one right answer on that.
 
AbbotAle said:
If you want to be really good in this game, you HAVE to learn how to add to winners.

And the only way I know of how/when/where to add is to become a real expert on the price action because that's where the clues are. That's the good news. The bad is it takes YEARS to properly understand the price action.

A simple rule is to add 1/2 of your intitial position. And sometimes the market will give you another add so making your position double.
More...

Curious, which markets do you trade? I have a theory that adding to winners is more valid for thinner, momentum style markets like GC or CL, momo stocks like TSLA, tech stocks.. but in a mean reverting market like ES I think it's less valid... more breakouts will fail so if you add on breaks,you'll be adding at the worst time as it reverts back into it's range. Also, if you are making any mean reversion trade like fading the extremes of a range, I think it makes more sense to be all in near the extreme instead of adding in the middle of the range. I think it also depends on the level of noise on the timeframe you're trading.
 
I agree with the earlier poster - adding to winners is only a solid strategy if your hit rate is good.

dvr

Adding works great in all markets, but only if they're moving of course. I mainly trade Cable but also sometimes the Dow which I think charts better than ES because of the size (28,000 versus 3,500 (1 tick on the Dow yet 0.25 on ES).

Yesterday there was a good add in both the Dow and ES.

1m chart.
Dow or ES at 9.30am NY time.
Boom, right from the off they took it bid. See the block of 1m bars right around 9.45am? That's the first buy, the clue is everyone wants to buy (hence the stall) but they either want to buy on the bid (being greedy) or they've got too much to buy and don't want to pay offers and have to buy ever higher. Whatever the case they should pay up in such circumstances.

Then we get another 1m block just before 10am. That again is same as above, they want to buy but don't want to pay offers. That is where you should add to your original position.

As to where to take profits, that's a whole different mega can of worms...
 
AbbotAle said:
I agree with the earlier poster - adding to winners is only a solid strategy if your hit rate is good.

dvr

Adding works great in all markets, but only if they're moving of course. I mainly trade Cable but also sometimes the Dow which I think charts better than ES because of the size (28,000 versus 3,500 (1 tick on the Dow yet 0.25 on ES).

Yesterday there was a good add in both the Dow and ES.

1m chart.
Dow or ES at 9.30am NY time.
Boom, right from the off they took it bid. See the block of 1m bars right around 9.45am? That's the first buy, the clue is everyone wants to buy (hence the stall) but they either want to buy on the bid (being greedy) or they've got too much to buy and don't want to pay offers and have to buy ever higher. Whatever the case they should pay up in such circumstances.

Then we get another 1m block just before 10am. That again is same as above, they want to buy but don't want to pay offers. That is where you should add to your original position.

As to where to take profits, that's a whole different mega can of worms...
More...

Did you take that trade? I took a long there on the open but I just scalped it. Where would your stop move to after those adds? It could dip below those consolidations and rip back up to a higher high, so you would still be right on the bigger picture but stopped on the add. Also it's very rare for ES to just keep ripping straight up like that on the open with only shallow pullbacks, from what I've seen. What I see more often is what happened today where it just fails back into chop, so that's why I scalped. Not that ES doesn't ever trend off of the open, but usually if it does, it has much deeper pullbacks than that, so I didn't feel right taking a trade on those. For those reasons to me it seems like hindsight bias, but if you did take that trade with those adds then I apologize.
 
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