Can scaling/averaging down be a viable trading system?
- Thread starter gdrew77
- Start date
you are covering positions by the minute---------as the market is moving up you are covering longs {from a core position} and gaining shorts and just the opposite when the market is moving down. when the market is choppy you are repetitively accumulating and covering--------up one point-cover/add, down one point-add/cover, up one point-cover/add, down one point-add/cover and so on. one side covers and one side accumulates constantly all through the day for every point of movement.
where this concept took me a long time to finally prove out was the starting capital needed and the "how to start and at what price level". also the range of price movement expected and where the 50% short to 50% long ratio for the core position should be within your projected range. my current expected range is 1120 to 1250 with 1170 as the point where I would be at 50 to 50 with the core position.
moussaka------then you miss all the repetitive profit accumulations minute by minute. in your case the ratio would change with price movement but no accumulation of 1 point covers. you MUST do this in separate accounts {no extra cost from the broker so who cares} that are cross-margined. to be long and short properly at the same time you need multiple accounts.
where this concept took me a long time to finally prove out was the starting capital needed and the "how to start and at what price level". also the range of price movement expected and where the 50% short to 50% long ratio for the core position should be within your projected range. my current expected range is 1120 to 1250 with 1170 as the point where I would be at 50 to 50 with the core position.
moussaka------then you miss all the repetitive profit accumulations minute by minute. in your case the ratio would change with price movement but no accumulation of 1 point covers. you MUST do this in separate accounts {no extra cost from the broker so who cares} that are cross-margined. to be long and short properly at the same time you need multiple accounts.
Gdrew77, make sure you have a sound complete trading plan first.
Trade it with the minimum size. Do not use more leverage or position size management. This is a complex process and from your posts, you are not ready yet.
When you get comfortable trading your one contract strategy, then trade a bit bigger and see if you still make consistent profits. If you don't, go back to previous size. Repeat that step.
"Wait, no..... how many contracts can you trade ?? Ok, take a Dom of ER2, when you see 100ish contracts order sitting, place your lmt order on top of it. maximum size.
Double down at the next level when you see again a huge size sitting."
Yes, it's called pain.
Ludovic
I may go to trend trading if scaling against the trend proves not possible but I currently trade reversals as price has extended itself to extremes and is bouncing off of trendlines or key fibs..... and I fade spikes off of news. When I enter my initial position price is moving against me and picks me up on a limit so I know going in that usually I can't pick the exact turning point so I scale in a few times as the position moves against me. Usually I am entering at a good level and get a pop back up to at least B/E. I know I have to plan for the trend days against me and the worst case scenarios. But I do think this can be done....or can it?
I loved to see this discussion come up. I held off until there were a few comments because I am so dead set against it.
I agree with the comment that, if the trade turns against you based on spcific parameters, get out and re-enter at a better position. Hanging on to a losing trade and averaging it out just because you "think" or "feel" the trade will vindicate you is ridiculous, absurb and foolhearty.
We trade to make profit not to ward off boredom.
I agree with the comment that, if the trade turns against you based on spcific parameters, get out and re-enter at a better position. Hanging on to a losing trade and averaging it out just because you "think" or "feel" the trade will vindicate you is ridiculous, absurb and foolhearty.
We trade to make profit not to ward off boredom.
Don't add more then once to any trade unless it is part of a proven mean reversion strategy.
If part of a proven mean reversion strategy derived from black swan events then go in first small and add as the risk decreases. Risk on adds decreases the further you get away from the mean.
That's my story and I am sticking to it.
John
MacroEvent,
So how is your strategy different from someone that trades from one account but short 2 units for each +1 point and long 2 units for each -1 point? Your 50%/50% point is my flat position point. Your 100% long point is also my 100% long point, same for short. And what do you do if price exceeds your upper limit? Do you stay 100% short or do you bail?
Perhaps you derive some psychological benefit from this needlessly-complex account setup. The problem is, the accumulation side is also gathering a paper loss from its existing position, the profit side is also losing future profit if the trend continues. You can't gain on both sides at the same time.
Overall its a counter-trend strategy that gets its edge from your correct forecast of the size of the future trading range. It's also cool in that the position is continuously adjusted and you gain benefit from small oscillations. I don't think gdrew has anything to gain from adopting this, though he should think about what trading range will blow out his account. I bet his range is much smaller than yours.
Edit: Oh yeah, one more benefit is you can use all limit orders and thus gain the benefit of the spread. So you're playing market maker. Do examine the change in your overall position (all accounts combined) as price changes. I'm sure you'll find it can be easily reduced to one account, even the eight account situation covering all four ticks.
Edit: The one account system also doesn't consume 100% margin at all times.
So how is your strategy different from someone that trades from one account but short 2 units for each +1 point and long 2 units for each -1 point? Your 50%/50% point is my flat position point. Your 100% long point is also my 100% long point, same for short. And what do you do if price exceeds your upper limit? Do you stay 100% short or do you bail?
Perhaps you derive some psychological benefit from this needlessly-complex account setup. The problem is, the accumulation side is also gathering a paper loss from its existing position, the profit side is also losing future profit if the trend continues. You can't gain on both sides at the same time.
Overall its a counter-trend strategy that gets its edge from your correct forecast of the size of the future trading range. It's also cool in that the position is continuously adjusted and you gain benefit from small oscillations. I don't think gdrew has anything to gain from adopting this, though he should think about what trading range will blow out his account. I bet his range is much smaller than yours.
Edit: Oh yeah, one more benefit is you can use all limit orders and thus gain the benefit of the spread. So you're playing market maker. Do examine the change in your overall position (all accounts combined) as price changes. I'm sure you'll find it can be easily reduced to one account, even the eight account situation covering all four ticks.
Edit: The one account system also doesn't consume 100% margin at all times.
Charlie:
You seem to miss the point. It is not "if" the trade starts to go against him.
In his system he expects the trade to go against him, and starts buying as the markets still is moving in that direction.
I believe you are right this system is prone to kill the acct in the long run.
But 9 out of 10 times profitable trades seems to be something to seriously look into...
I believe gdrew's issue is not "the system" but "his lack of discipline" in implementing largest drawdown stops.
And I don't think it is possible to really know exactly where to put this final stop. This single issue will make or break the acct.
Because he might only breakeven at 2 max stoploss for every 8 profitable trades.
His acct starts bleeding at 3 stoplosses for every 10 trades.
Numbers just don't add up imo.
kubilai----------i was responding to the poster that he should not continue his prior method and that the only way to do something similar would trade both directions versus one. trading in a ratio based system has the profit power in the repetitive 1 point accumulations, so you only have to ballpark the range of a few month period to maintain positive results.
the start of this method is the critical point-----------it is best done when price is trading at or near your projected 50% to 50% level {it can be started away from this point but it takes extra attention}. the need for multiple accounts is a mechanical function of how to handle trading multiple price levels without having to do it manually. try to trade this out of one account when a news item hits the market {it is hard enough trading both sides manually out of two separate accounts when 4 point range news hits-------------the mouse, click,click,click,click,click,click---------you see what I mean}.
the london bombing day is a clear area where having the trade set-up properly with multiple accounts locked in that I did not miss out on any covers/accumulations during the entire day. if I was in that storm with one account trading manually---------forget it.
one other thing to understand is the combined profits of accumulations and the side that has price moving in its direction always greatly surpasses the "technical" underwater side of the position. everyday all positions that were covered are at a profit---------that is important to understand.
the original poster needs to know that there ARE ways to do things similar to what he tried, but at very different levels. I am sure he knows that this could not be started with 19,000 dollars in an account-----------this thread is about the idea.
the start of this method is the critical point-----------it is best done when price is trading at or near your projected 50% to 50% level {it can be started away from this point but it takes extra attention}. the need for multiple accounts is a mechanical function of how to handle trading multiple price levels without having to do it manually. try to trade this out of one account when a news item hits the market {it is hard enough trading both sides manually out of two separate accounts when 4 point range news hits-------------the mouse, click,click,click,click,click,click---------you see what I mean}.
the london bombing day is a clear area where having the trade set-up properly with multiple accounts locked in that I did not miss out on any covers/accumulations during the entire day. if I was in that storm with one account trading manually---------forget it.
one other thing to understand is the combined profits of accumulations and the side that has price moving in its direction always greatly surpasses the "technical" underwater side of the position. everyday all positions that were covered are at a profit---------that is important to understand.
the original poster needs to know that there ARE ways to do things similar to what he tried, but at very different levels. I am sure he knows that this could not be started with 19,000 dollars in an account-----------this thread is about the idea.