Isn't this method not very objective/rule based?
After the 1st leg up do you sell or hold?
- Thread starter rin4et
- Start date
It's called Marginal Analysis --
marginal revenue
marginal production
marginal utility
It's ruled neoclassical microeconomics for the last 150 years.
see, for example, Marshall; Jevons; Ely; Samuelson; Friedman; et. al.
Yes professor. But how do I calculate marginal revenue, production and utility for my trade so I can decide to fish or cut bait?
Thank you in advance.
I am not a day-trader so I'm not able to guarantee this method intra-day but see what you think. It is aimed at exploiting trends to the maximum potential. It sacrifices unrealised early profit in favour of potential excess later gains while not entailing any additional capital risk.
Firstly, be aware this is a trend-following tactic. Once I have entered e.g. long in an uptrend I set a new buy order at the same distance above entry as the initial stop is below it, let's call that distance r (r for risk). The initial SL is TA-based. When the second trade is triggered, I move the SL on Trade 1 to b/e, Trade 2's SL is Trade 1's entry. Hopefully the uptrend continues and a series of new trades are triggered. When each new trade is opened, I set a new buy order r points above the last entry and move all SL's r points higher. So capital risk never increases beyond r.
After the initial trade plus 3 pyramid trades, you enter territory where your returns if all SL's are hit exceed those on a single trade bought and held, and these returns increase parabolically with each trade added.
Food for thought I hope.
I had the same dilemma this week in futures. My saving grace was that it was position trading (buy and hold). With daytrading methods I would have been out and at a loss.
This is a very complicated issue that involves way too many variables, at least on the futures side, unless you can give us more exact information as to what you are doing. You seem to be doing this with pure stocks, not stock-futures with expiry? Without the expiry issue, you have a whole other world of trading in front of you.
I can tell you one thing...There is a world of hurt involved with the idea of "kicking myself for not staying in the trade." I could have at least doubled my profits had I stayed in my trades today. But you HAVE to see the flip side of this, which is..."If I had not gotten out of my trade when I did, and it reversed, I would be in a world of hurt. WHY DID I NOT GET OUT WHEN I DID?!?"
Whichever hurts less is what will work for you. I choose the conservative method. So what that the position took off way past my exit? At least I am out, made money, and have no more risk exposure in the market. It is tough to swallow the humility, but it puts hair on the chest. Even if you are a woman. Just ask Xela. (j/k Xela haha).
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Isn't this similar to trailing stops?
When you calculate reward-to-risk for a trade, you are doing marginal analysis.
When you calculate reward/day-to-risk, you are doing even better.
Google Al Sherbin on the tastytrade videos FMI, and wish like hell he still had that bully pulpit.
Thank you sir.
Yep, that smells like a trailing stop to me. A classic pattern I have tried. It works very well in a strong trend.
The idea is to go in with one extra contract over the original. When target is hit, the second contract gets the BE stop, but the hope is that the second contract goes further. But in a mixed-mode market? It kind of sux due to the retrace stops. Mreh.