Do you add to losing positions if a new setup occurs?

M

mmm

Hi,

Say you take a valid short sell setup. The market continues to go up against you, but you have not yet been stopped out.

At this higher level, the market completes another short sell setup.

Do you take this short sell setup?

On one hand, I think you should, because each trade must stand on its own merits, and is independent of previous trades.

On the other, I think you should not, because in a way, you would be adding to a losing position.

What do you think?

Thanks.

-- M
 
I do take additional setups. For example, today, I shorted 1070.00, 1071.50 and 1072. Covered around 1069. So, all three trades were valid, but each was its own entry setup.

Edit: Just wanted to add, that I only do this for trades that are working on a larger time frame like 30 min. I do not scale in for scalps. Usually, if I'm scaling in/out of a position, I plan on holding it longer, my stops are a little wider; and trades are taken based on 10 and 30 min. charts.

-Fast
 
Quote from mmm:

Hi,

Say you take a valid short sell setup. The market continues to go up against you, but you have not yet been stopped out.

At this higher level, the market completes another short sell setup.

Do you take this short sell setup?


Thanks.

-- M
More...


No,
The first entry has to work first.
 
...absolutely yes, this is equivalent to reentering close to the stop, I do it whenever it occurs, as systems selected to be mutually consistent (but independent) powerfully confirm each other

and btw, nothing wrong with adding to a loser, as long as you have tested that entry scheme
 
If you have a strong trend day like today you could get killed trying to ADD to SHORT's all day. You should only ADD to a trade against a trend when you have a sequential signal in conjunction with say a trend line break (sequential...like two adjacent divergence signals from a MACD that are exactly next to each other). With a dual signal and a trend line break then you could enter a trade with good risk management and a set profit target for the trade. ADD trading is very high risk and should only be done when a person has a good level of experience in trading. You must have a strict set of rules when you start doing ADD trades for the first time...start small and build up your ADD position sizing over time as you develop and prove strategies that work for you.

I have been doing ADD trading for over a year now, and I like doing these type of trades intraday when the volatility is low and when the market is oscillating. ADD trading works great in tight range days...this is the only "edge" I have found for these type of trading days. ADD trading also works VERY good for building up a position trade. For instance, for the ES, when the S&P is near making new highs (within 5 pts of previous S&P highs), and the current price action is at least +15.0 pts above the "Daily" chart 20 EMA line, this is an area I would start entering SHORT positions for a position trade. As the price action moves NORTH, I would ADD equal contract entries about every 1.0 to 2.0 pts of price action against my original position trade entry level...or scale in as others call it. When the retracement move (mean reversion) starts to move price in your intended direction, then you need to lift position levels off to take profits. ADD trading is more of an art then a science IMO, and in the end you have to fit a strategy that will work within your accounts size and your risk levels.

Chris
 
Quote from mmm:

Hi,

Say you take a valid short sell setup. The market continues to go up against you, but you have not yet been stopped out.

At this higher level, the market completes another short sell setup.

Do you take this short sell setup?

On one hand, I think you should, because each trade must stand on its own merits, and is independent of previous trades.

On the other, I think you should not, because in a way, you would be adding to a losing position.

What do you think?

Thanks.

-- M
More...


Yes,

Usually it's a chance to get more shares at a good price. But it also makes your mental stop a lot tighter because of higher risk. I never use real stops.

I think overall it has worked out well for me. Sometimes the price just dips to shake out and I stay and even try to pick up more shares. Usually, when the move waiting to happen is really good, I can never pick up more shares at a good price even though I try.

Of course sometimes you are wrong and you have to be disciplined enough to get out even though you previously picked up more shares to a losing positions.
 
1. Generally a bad strategic play. (Not the same as "scaling in" near your play for a market turn at support or resistance.)
2. If the trend is up, avoid averaging into short. If trend is down, avoid averaging into longs.

Some advocate NEVER adding to a loser. I'm confortable with that idea, too.
 
Quote from AMT4SWA:

If you have a strong trend day like today you could get killed trying to ADD to SHORT's all day. You should only ADD to a trade against a trend when you have a sequential signal in conjunction with say a trend line break (sequential...like two adjacent divergence signals from a MACD that are exactly next to each other). With a dual signal and a trend line break then you could enter a trade with good risk management and a set profit target for the trade. ADD trading is very high risk and should only be done when a person has a good level of experience in trading. You must have a strict set of rules when you start doing ADD trades for the first time...start small and build up your ADD position sizing over time as you develop and prove strategies that work for you.

I have been doing ADD trading for over a year now, and I like doing these type of trades intraday when the volatility is low and when the market is oscillating. ADD trading works great in tight range days...this is the only "edge" I have found for these type of trading days. ADD trading also works VERY good for building up a position trade. For instance, for the ES, when the S&P is near making new highs (within 5 pts of previous S&P highs), and the current price action is at least +15.0 pts above the "Daily" chart 20 EMA line, this is an area I would start entering SHORT positions for a position trade. As the price action moves NORTH, I would ADD equal contract entries about every 1.0 to 2.0 pts of price action against my original position trade entry level...or scale in as others call it. When the retracement move (mean reversion) starts to move price in your intended direction, then you need to lift position levels off to take profits. ADD trading is more of an art then a science IMO, and in the end you have to fit a strategy that will work within your accounts size and your risk levels.

Chris
More...

Lets say a low volatility day turns into a high volatility day. Would you continue doing adds for a position moving significantly against you and wait for a pullback to get out with a smaller loss? And/Or are your skills to the point that this rarely if ever happens, so it really isn't an issue?

Thanks for your posts Chris.
Dan
 
There are two methods to deal with this situation as it is eventually bound to happen when doing ADD trading (about 20 to 25 % of the time). First of all you would want to change the spread between ADD price entry levels...if you are ADDing every 1.0 to 1.5 pts against your original trade entry price and then a parabolic jump hit, you would need to adjust the spread. You would then want to go every 2.0 to 3.0 pts of price action prior to your next ADD entry. This is a total judgement on the fly activity that can only IMO be learned through actually direct mentoring or hands on trial and error. A person has to have a plan and have built in options for all market probabilities...this is a must.

The second method is to trade contract quantity levels that are at no time placing your account in jeopardy if you have a numerous number of ADD's at different price layers. You have to decide how big of a gap your trade plan will cover from your initial entry to your last ADD...this may be 5 pts for some or 20 pts for someone else. This is all a part of an individuals risk tolerance and overall account size. You also have to take profits as the price action starts to move in your favor crossing your different ADD levels...you do not want to hang on too long and watch price action move against you again...take profits the FIRST time price action crosses one of your ADD levels in a profitable direction. Again, this is more art than science. Hope this helps.

Chris
 
Yes, I do add.
If your premise has not changed, there is nothing wrong with adding in some more contracts.
However I do have a couple of warnings.
I trade with a trend so mistakes are less likely.
And watch out for news and volume spikes.
Those can change the direction in a heartbeat.
:)
 
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