do these 2 posts conflict?

J_Commisso,

I don't think adding to winners is suitable for all systems. If you had a signal to begin with, why not put all your chips on the table? In fact, one could make an arguement that, by waiting to add more chips on the table, you are really hurting yourself in the long haul?

Also, what about averaging up / down on your losers that have not broken your stop? There is nothing wrong with taking advantage of a good retracement if it fits your trading style.

I think Gordon has some of the same problems I do. We came at this with fresh open minds and we were both overwhelmed with information overload.

Young traders are especially vunerable and influenced by what words come out of the mouth of more experienced traders. What then happens is, instead of believing in their own abilities to understand and interpret the market, they begin trading and instantly become paralyzed because there are 500 little people on their shoulders each saying to do something else.

The trick, in my opinion, to becoming a successful trader is finding out what works for you and having confidence in your own abilities. Too many people wander around message boards, chat-rooms and local libraries trying to find these great systems that work but what they (and I, in the past) fail to realize is that successful trading is about training yourself to recognize patterns, trends, etc.

I have since thrown out a lot of TA (actually pretty much all of it) and concentrate strictly on tape, volume, momentum and trends -- as well as what the chart is telling me. Each day, I forget more and more of everything I've read (thank god) and develop my own theories on the market.

I'd encourage any newbie who wanted to trade to do the same -- because when you stop trying to find answers from other people and start trying to find them within yourself, you generally get much better results (as anything else in life).
 
By the way, another situation where adding to winners may be mandatory is small caps trading.
I cant take a full position at once (at least on Euronext where the MM would screw me). Since a position moving towards my stop is more likely to be a loosing position, an increase in risk might not be warranted, while, once the stock moves in my favor, I will have the occasion to find good setups, that will still be better than sending the price down initially.

(this might not apply to the NYSE small caps, or differently)


OHLC
 
Here is a qualitative description of the tweaks that you could make to your system to improve trading. All of these tweaks involve changes in the win:loss probabilities and gains. In each case, the key is to see if the trade-off between the changing the probability of winning or losing is favorably than compensated for by the $-values associated with winning or losing. Although I have described them qualitatively, one could create a series of equations over probability density functions for a more quantitative analysis. Furthermore, you could also do a more rigorous analysis that includes both the expected gain for an adjustment and the expected standard deviation of gain for an adjustment.

<b>Data: Flipbook of Trades:</b> This analysis assumes that you have some way of looking at the trajectories of all your trades with the entry point fixed a few bars from the left edge of the chart. The idea is to really see what happens n-bars after entry across all trades. A flipbook (one trade per page) with all the charts aligned so the entries are on the same place on the page helps you see the tendencies of price action after entry. You can also do this in a spreadsheet by plotting multiple trades on the same chart. If you want to get fancy, you could also create alternative flipbooks that are references to the exit (and divided by whether the exit was a profit-taking exit or a stop order intended to forestall loses or preserve profits.


<b> Catalog of Problems (and tweaks) </b> These tweaks look for favorable trade-offs in 4 numbers: %-winners, %-losers, average $-gain-per-winner, and average $-loss-per-loser. The expectation per trade is simply equal to (%-winners)*(average $-gain-per-winner) + (%-losers)*(average $-loss-per-loser). In each of these tweaks, some aspect of the pattern of price action during your trades contains an unexploited opportunity for greater profits or fewer losses. Just be careful that you do not look too hard for the tweak -- if the tweak is not obvious, there is a high chance that you are overanalyzing the system. Tweaks that only move a few % of trades from the loser's to the winner's column may be statistically spurious and not reflect what will happen if you trade with the tweak. Tweak carefully, my friend.

<b>1) Stop is Too Tight:</b> If a large % of your losers turn-around just outside your stop, then you may have too tight a stop. A slight increase in the stop would dramatically reduce the number of losers without increasing the average $-loss.

<b>2) Stop is Too Loose:</b> If none or very few of your winners approach your stop, then you might have too loose a stop. Tightening the stop would reduce the average $-loss without affecting the % winners.

<b>3) Profit is Cut Short:</b> If most of your winners continued moving in your direction after you exited, then you are cutting winners short. Letting profits run farther would increase average $-gain without decreasing %-winners.

<b>4) Profit Runs Too Long:</b> If most of your winners are past their peak or many of your losers went high before slumping, you may be letting profits run too long. A tighter profit target will increase the %-winners more than it decreases the $-gain-per-winner

<b>5) Entry is Too Early:</b> If the price consistently moves against you by more than the spread in the early part of your trade, then insert a wait. Waiting will add a favorable bias to your system by reducing the %-losers.

<b>6) Entry is Too Late:</b> This is harder to judge. If the price action immediately prior to entry was in your direction, then MAYBE entering earlier might help. For example, your entry may be too conservative by waiting for too much confirmation before committing to the trade. This tweak is DANGEROUS because it uses an incomplete dataset. If you decide that early entry might be more profitable, then you need to go back and retrade/retest all the old data. Earlier entry will put you into trades that you did not do and those additional trades may have better (or worse) performance characteristics.

<b>7) Add to Winners:</b> If most of your winners trade consistently in your direction and few of the losers go high before slumping, then adding to winners might help. (In your flipbook of trajectories, this will look like a perfect fan of price moves with few back-and-forth retracements) Note that adding to winners is effectively like entering later after further confirmation. If your current entry is only breakeven and adding to winners looks profitable, then skip the current entry and only enter after the old entry would have been profitable. Profitseer is exactly right in saying that adding to a winner is just a second trade -- maybe you should only do the second "add to winner" trade and skip the earlier "current entry" trade.

<b>8) Secondary Indicators:</b> (CONTROVERSIAL) You can also check if other indicators can help predict the outcomes of your trades. For example, you might find that your best trades all come when some momentum indicator was high just prior to the entry signal. This tweak is dangerous because it is easy to overfit the system -- it is inevitable that by chance some indicator will seem to have a pattern that seems to predict the outcomes of your trades.


<b>Key Question: Do You Have an EDGE?</b> It is also possible that your current system has no edge or an inadequate edge. If none of these tweaks looks compelling, then break-even may be as good as it gets with how you are currently trading. It might be time to consider a very different approach to trading -- going on a renewed quest for that ever elusive edge. I'm sure that many of the traders here on ET (myself included) are on their nth approach to trading. I'm not advocating jumping frantically from trade system to trade system, only that after sufficient evidence is in, you might conclude that a system just is not working to your satisfaction.

I wish you success,
Traden4Alpha
 
if adding to winners is "just another trade," are all these people wrong? why are they doing it??? why would these people and MANY others pyramid their positions if it did not benefit them?

darkhorse
rtharp
commisso
secco
publias

Originally posted by darkhorse
two words:

controlled pyramiding.


i shall say no more.
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Originally posted by Publias


and therin lies the secret to a high win/loss ratio and there really is no more to say...
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Originally posted by Publias
I never made my money in this game being "right" more than "wrong"... I always made my money by being more "right" than "wrong"...

PEACE and good trading,
Publias
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Originally posted by daniel_m
I was originally gonna ask everyone (politely) to shut up.. cos this thread is giving away a lot of 'secrets'...'secrets' that actually help make money... but, then, after considering it a little more, i'm pretty sure most people will just ignore it and keep searching for ever more exotic entry techniques (OOs spring to mind) for their edge..
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Originally posted by Publias


It does not matter if we talk about it because 99% won't be able to do it anyway! Dark gave away what I feel to be one of the keys to it all and yet people will still indulge their psycological shortcomings by peeling off...

And lpcarmgo is dead on with taking a statistical macro view of it all, but they will still stay attached to the micro results and as a result get in their own way...

That is the great thing about this game :) You can give them the "secrets" and they will look right past them looking for something more intricate and artificial...

Like that motorcycle Zen guy says "Truth knocks on your door and you say; go away I am looking for the truth and so it goes away!"

PEACE and good trading,
Publias
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Originally posted by secco
this is toooo funny!

is this another super secret to successful trading??? your "controlled pyramiding"???

give me a fucking break......it's called adding to winners and yeah, it works, but how many losers will either (1) not believe you and ask you for your favorite setup or (2) nod their head in agreement but be unable to pull the trigger when it comes down to it???

hey i'll yell out the ULTIMATE SUPER SECRET TO SUCCESSFUL TRADING: CUT YOUR FUCKING LOSSES!!!

every loser in this game has heard that one and most all of them believe in its truth.....so why can't they do it EVERY TIME with NO HESITATION and NO REMORSE???

most people fail in this game and in life because of themselves........you can hit them over the head with the SIMPLE TRUTH and they can even BELIEVE it but how many can CHANGE themselves to live in accordance with it???

but why speak in riddles? i'll spill da beans.......but i'll just post a link since i can't elaborate it better than it has already been done for FREEEEEEEEEE!!!!!!!!!

see rule 2:

http://www.futuresmag.com/futuresclassroom/phantom/phantom.html

happy reading, dooooooods! :p
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Originally posted by rtharp
Soon I had a portfolio of stocks that were heavily out performing the market. Since I was stopping out of the losers I had extra capital and I was pyraminding my winners by adding to them. Within a very short time I would have very nice positions in stocks that were doing great. The problem was I can't live off of profits to have my account grow. My account was just too small.
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Originally posted by J_Commisso


The method I am employing right now does require me to add to winners, but it is not always necessary in order to produce a positive expectancy...

I make money 3-4 days out of every 10 (if I am lucky), but have a nice expectancy on the macro tf...
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i could go on and on.
 
quotes from "vulture"

"One of the more interesting interviews in Market Wizards(I hate to bring this book up cause it seems really hackneyed), but was the interview with McKay where he said he varied the position size on a scale of 50x...That is where the actual leverage comes into play...No system can tell a great trader how much size to trade in any given scenario...Having huge exposure to a very trending move that never puts any pressure on the first entry is the definition of maximizing the winners...How many traders trade minimal size take their small profits, then miss the rest of the move...Or even worse, put on small size at the best possible entry, take it off, re-enter with twice the size and stop out for a net loss on the two positions...This happens all the time...Yet they should have been in the trade only once and pairing in, pairing out for the duration of the move...

These are the aspects of trading very few talk about...This is the stuff that makes all the difference in the world..."

"Yes, this is a very "meaty" discussion...This is the stuff that we have to deal with everyday...For instance, what happens when the security or future you are trading breaks out higher or lower and you cannot get into the position right away...You have a signal to go long or short, but you are pretty certain that your entry at point A may be a bit early or late...you want the exposure to the move, should it resume its original trend, but you are also concerned about the retrace backwards...

That is where the scale has to be explored...I deal with this stuff all the time myself...The key is to have enough "bullets" to be able to ensure some exposure for the move should it resume and you are able to "pair out" without reducing your exposure to 0 again and dealing with the same dillema...

At the same time, if your first entry is a bit early and it retraces another x points against you, how do you increase your exposure ie(price improvement) and, at what point are you wrong...As I have gained more experience in this area of trading I find that alot of the trades that I enter(if I am late and miss the perfect entry) require that I actually add to an initially losing position so as to give me a bit better price, with the objective of establishing a position in a "range" and then pairing out when the trend resumes...

btw, I exclusively trade the es futures, so this might not be as applicable to equities..."

"I think alot of traders take unnecessary losses at certain times that could be managed better if they could objectively assess the success/failure of their entries...Without a very good entry, the trade basically becomes about playing defense really quickly...With a good entry, the trade becomes about managing the profits...Sometimes, if trading in a range and the first entry is not perfect, but the trade is still inside the range and the market still suggests the original direction, adding to the trade is a viable option as well...

As far as adding to a position as it proves you right, ...You have to decrease your exposure as the trade moves your way...but again, this relates to your basis cost...How much of a profit do you have and how will the add-on affect the overall profitability of the trade...


Actually, there was a typo...I did not intend to say decrease your size, per se, but rather decrease the add-on contract size relative to your initial entry...For instance, if 10 contracts on the first entry, perhaps 3-5 on the add-on entry...This way you do not jeopordize your entire cost on the trade should the market come off and retrace a bit back towards the entry..."

"Basically, I find the best way is to just trade smaller size on breakouts and then if you have any movement against the position, put the other half on and then hold yourself to clearing out of that trade if you have any more adverse excursion...Basically, I want exposure to trend movement, but I do not want to give away my entry and be stuck holding the bag if I mistakenly sell a false breakout or vice versa...You just have to have different rules for different environments and know where and when you are absolutely wrong...

I just do not think there are any absolutes to trading...Sure, if you continue to average down a position hoping it wins, that is stupid...But to simply say never add to a loser is not that simple...Alot of traders add to losers, they just have an ultimate uncle stop where they know they are absolutely wrong and the risk outweighs the reward"

"I think it just goes back to planning...A good example would be something like this...The S&P futures are selling off, you want exposure to the down move, but you feel that you may compromise yourself by entering after there has been a good deal of movement away from the optimal entry, so you short maybe 1/2-1/3 of your full position sizing with the goal of either keeping the position until it reaches your profit target or adding more to the short on a pullback against trend into the area you originally wanted to short...Obviously, if you are only trading at a fraction of your full size and the market has not yet proven you "wrong", you can add to the position and improve your cost and exposure to the developing trend...Once it reverses or IF it reverses in the anticipated direction, you can put your stop above that swing high knowing that you are wrong there..."

"This is the aspect of trading, that I believe is more art than science...Another person on a similar thread stated that he made the majority of profits from his "runners"(i.e. the free trades after you have covered your costs on partialling out on first contracts)...I think that is absolutely true...While the drawdowns, at first, will be an eye opener when you are wrong with 3-5 lots, the upside is magnified as well because you can scale out of your position as teh market moves your way, trail your stops and pick up some bigger moves...With 1 lots, you need near perfection in each aspect of the trade...You have to enter perfectly, cause you are not giving yourself teh opportunity to add to a position and scale in, you have to exit perfectly and estimate the exact inflection point in the short term...sometimes you catch the exact bottom, but most of the time you cover on the first signs of strength counter-trend...then the market breaks your way for another 3,4,5,10 handles and you are on the sidelines...or worse yet, you enter, market runs 2 handles against you, stops you out, reverses and runs to your original target...the more contracts you can trade, the more flexibility you have...the better you can scale out and scale in, average in, adjust and scratch losing trades, maximize winners, etc...

Personally, I still struggle with adding to winning positions...typically I just accumulate a position inside a certain range and then start scaling out if it goes my way...if it goes against me I reduce the exposure and then try to cover the remainder near break even...it is tricky, like all aspects of trading..."
 
GG, it's not contradictory.
You can add me to the list. we do add to positions depending on the method followed.
But it's conceivable to treat the pyramiding as separate trades (ie not seeking averaging, but time spreading).
sometimes people say 2 different things but do agree on the broad concept.
But don't focus too much on this. Read again trader4's post.

tntneo
 
Gecko,

For the sake of clarity Commisso & Publias are same guy :p

Again Gekko it all depends on your goals and personality! There is no one absolute way to make money in this game, it is usually that space between the absolutes.

I have employed alot of methods where on the macro frame the "right" thing to do was to add to winners AND then on other methods the "right" thing to do was to peel off. It all depends what you are comfortable doing and what you want to accomplish.

Right now I only focus on one method, I look to position myself in the direction of the morning trend, add as it goes in my direction and hold on tightly. This gives me a low win % VERY high R/R. Doing this is not for everybody because it goes against everything most are comfortable doing and what most look to get from the market. For me I will sacrifice comfort for $ in the macro time frame...

PEACE and good trading,
Commisso
 
i'd like to make another point. if the stuff i'm talking about isn't important, why aren't the guys who are making money discussing this all the time? how many threads do you see here dealing with what i'm talking about? it's because the guys that are making money are doing this type of stuff and that is their advantage over the guys like me who are not doing it.

I HAVE NEVER ADDED TO/SCALED IN/OUT OF A POSITION IN MY LIFE AND I SUCK!!!!! what does that tell you?!!?!?!?!?

the only ones that talk about this, are the ones like me who want to learn and don't make money. you will not see this brought up much by the guys with nice houses/cars.

look at this POP quote!!! you can believe POP or not...it's up to you. personally, the sh!t this guy says HITS HOME WITH ME. this quote says it all...... one person wants to make $100/day and doesn't think adding to winners is important...... then you have this guy claiming he makes $1000/day and he STRESSES adding to winners!!!

"You are going to have to press your winners if you really expect to consider yourself with the ability to make a living or extra income. Otherwise, face the truth that you are only playing to break even.

Who wants to play for a tie? I sure don't! I remember a trader asking me how I felt about making money in my early days. She wanted to know how much I made. I indicated to her that if I did not make at least a thousand dollars a day, it wasn't even worth trading to me. She said that she would be happy with a hundred a day. I asked her if she added to winners. She said that there was no reason to add to winners."
 
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