Adding to Winning Positions

[jmsco]

I was wondering how and if other futures traders add to winning positions. I've read other threads that touch on this subject, but I wanted more information.

I guess I would characterize my trading style as intraday swing. I trade the es only. If a trade starts going in the right direction and another entry signal occurs I will add to my original position. I will add to an existing position only twice because I don't want to add to a winning position too far away from where I originally entered.

My thinking is that most intraday trends don't last all day and I find my self diluting my average entry price if I keep adding. eventually the trend will turn and my last entry could/will be under water by the time I get out. I always exit the trade all at once.

I have found that adding equal contracts makes my average price too far away from the original entry price. I have been entering trades on a 3,2,1 contract basis (Or similar multiple). Where 6 would be the most contracts that would make sense from a position sizing/ risk management standpoint. If I'm wrong right from the onset I haven't risked the whole 6 contracts and if I'm right the average price isn't as diluted as with adding equal contracts.

The es today (5/15) around 11:30 until almost 13:00 was a good example of an intraday trend that had several re-entry signals.

What are your thoughts / methods? Thanks, Jeff.

 

[vulture]

This is the $64,000 question, imo...By the number of responses to another similar thread regarding adding to losing positions, I am not sure there are any clear cut "right" ways to manage trades...I trade the ES almost exclusively as well and almost always scale into the position with 1/2 size on the first entry and then quickly look to add to the position if the scenario works as I anticipated...I typically use support and resistance exclusively in determining where market SHOULD move to and from...I also make sure I know what the objective of the trade is; whether it is an intra-day position(swing) trade or a scalp...Different rules apply for each type of position...

In general, I think that is the beauty of the stock futures; so many ways to manage and scale into and out of a position...I also think different trading environments dictate different management techniques...The "hard and fast" rules don't seem to apply to these markets...Many will disagree with me, but from my own experience I believe that you have to have different management techniques, different partial techniques, scaling techniques for each environment...

An interesting topic, too bad there has not been alot of participation

 

[-ooO-(GoldTrade]

jmsco >I have found that adding equal contracts<

Jeff it sounds like you have a real thought out and doable plan. Adding equal contracts is called stacking. I stack when I am going beyond 3 levels.

The first stack increases your position 100%

The second stack increases your position only 50%

The third stack increases your position only 33%

So you are really entering on decreasing exposure

jmsco >entering trades on a 3,2,1 contract basis<

3,2,1 is a proper pyramid.

The first pyramid increases your position 66%

The second pyramid increases your position only 20%

Day trading does not give you much time. But when I seasonal trade there is no reason not to keep adding additional 1’s on each new breakout. It barely moves the average price up at all.

The third pyramid would only increases your position 17%

jmsco >position sizing/ risk management standpoint.<

This is the most important point. Your including the key words ”position sizing,” shows that you have an above average education on these things and are working within the framework of your complete equity. In a case like this ”averaging up,” is completely appropriate.

vulture >you have to have different management techniques, different partial techniques, scaling techniques for each environment...

This is true of course absolutely. You will increase your income when you can carry more contracts.

GoldTrader >

In essence you will gain the most if you could put your complete position on at the beginning and dump it all at once at the end.

In real trading an “Anti-Martingales,” scaling in technique can reduce more risk than it costs.

 

[JT47319]

According to Kaufman in Trading Systems (or something like that) a reflecting pyramid, where you add contracts on a 3-2-1 basis and then scale out on a 1-2-3 basis, has a more optimal risk-to-reward basis than stacking or plain pyramiding.

 

[fat_slut]

since you write your posts in the colors of the rainbow while us normal folk type in black, does that mean that:

A) you are a queer
B) you are a big computer dork and think writing in color makes you cool
C) you are just plain lame
D) you are gay??

 

[spreadem]

Sometimes there will be a trade setup/signal that will be in the same direction as the position that the trader already has. Given the new information, I would conclude that an additional position should be elected.

In this case, the original stop for the original position should be moved closer to where the market is trading, be breakeven or slight winner.

 

[PetaDollar]

Quote from vulture:


An interesting topic, too bad there has not been alot of participation [/B]

As a general rule, the importance of the topic is inversely proportional to the amount of participation.

 

[wwatson1]

If you have a system that makes money why not just enter and exit on the signals and increase contract size as you build your account?

I don't see how adding more contracts AFTER the initial optimum entry point could improve your results!!

Keep your system simple that is what I say! adding on the way up/down could get you in a right mess.

 

[candletrader]

Quote from wwatson1:

If you have a system that makes money why not just enter and exit on the signals and increase contract size as you build your account?

I don't see how adding more contracts AFTER the initial optimum entry point could improve your results!!

Keep your system simple that is what I say! adding on the way up/down could get you in a right mess.

Well, the argument for not going all in at once is that an initial partial entry has lower $ risk... and you only add to the position once you have been compensated for that initial risk... in the whipsawy context of ES there may be merit in such an entry methodology...

 

[funky]

Quote from peterfigliozzi:



As a general rule, the importance of the topic is inversely proportional to the amount of participation.

I've noticed that the risk/reward ratio is much better when people scale IN to the topic in a 1-2-3 fashion.