ES Journal Archive (2006 - 2008)

[m4a1]

all of this makes sense, but the key question is how do you determine whether to put on all 6 contracts at 1381.50 or scale in as price goes against you?

Quote from Buy1Sell2:

Ok let's take today's late signal from my chart. The signal occurred at 1381.50. We go long and set our stop at 1376. That's 5.5 points or 275. Let's round to 300 for commissions. Our account size is 100,000. That basically gives us a total of 6 contracts that we can trade. Keep in mind 6 contracts is roughly 4 to 1 leverage, which I don't necessarily advocate, but knowing that people here do use leverage, let's keep it that way for example's sake. If 6 contracts is our limit and we start with 2 instead of 6, I see no reason that we can't add 2 more at 1380 and perhaps 2 more at 1378. We know our signal is a very valid signal (especially today it was), so there is nothing wrong with averaging down. By the way, we won't lose 2 percent at the stop level now since our average price is now lower. The other side of the coin of course is why not just buy the 6 at 1381.50? That's ok too--you just can't average in then. The stop level dictates the position size. It's just that simple. Is the trade a losing trade at any level before the stop is hit? No--it can't be because the trade is not mature yet.

 

[Keeper]

Sorry everyone, in my 20 years experience in this game, adding more contracts to a losing position, does not work in the long run.

Yes, your percentage wins will increase, but your profit factor will drop dramatically. It's not worth it.

It's always better for the overall strategy to close out the losing position for a small loss and reenter at the better price always using full position.

Quote from Buy1Sell2:

Ok let's take today's late signal from my chart. The signal occurred at 1381.50. We go long and set our stop at 1376. That's 5.5 points or 275. Let's round to 300 for commissions. Our account size is 100,000. That basically gives us a total of 6 contracts that we can trade. Keep in mind 6 contracts is roughly 4 to 1 leverage, which I don't necessarily advocate, but knowing that people here do use leverage, let's keep it that way for example's sake. If 6 contracts is our limit and we start with 2 instead of 6, I see no reason that we can't add 2 more at 1380 and perhaps 2 more at 1378. We know our signal is a very valid signal (especially today it was), so there is nothing wrong with averaging down. By the way, we won't lose 2 percent at the stop level now since our average price is now lower. The other side of the coin of course is why not just buy the 6 at 1381.50? That's ok too--you just can't average in then. The stop level dictates the position size. It's just that simple. Is the trade a losing trade at any level before the stop is hit? No--it can't be because the trade is not mature yet.

 

[romik]

Quote from m4a1:

here's what i learned papertrading in real time so far.

if you pull up a chart at the end of the day, one can clearly see where there are grails and where there aren't. for example, on this chart one can clearly see that there was no grail at 11:15. however, if you were trading in real time, you would have seen a grail at 11:15. this is because the rsi of each bar is recorded using the close price of that bar.

so between 11:00-11:15 there was a grail, but looking at the rsi in hindsight will not tell you that because each bar's rsi is recorded using the close price of that bar.

Have you looked at a pattern, which hasn't been based on a completed frame?

 

[Buy1Sell2]

Quote from Keeper:

Sorry everyone, in my 20 years experience in this game, adding more contracts to a losing position, does not work in the long run.

Therein lies the rub. No one is suggesting adding to a losing position. A position only becomes a losing position when your stop, which is outside the noise, is triggered.

 

[Buy1Sell2]

Quote from m4a1:

all of this makes sense, but the key question is how do you determine whether to put on all 6 contracts at 1381.50 or scale in as price goes against you?

This is for you to decide. I have laid the groundwork. You must now do your homework.

 

[Buy1Sell2]

Quote from wave:

-----------------------------------
So do you ever just abandon the native stop and use a mental stop and keep averaging down until you reach your 2% risk limit? I am assuming not since it could easily place you in a very overleveraged position?

Many times I am using a mental stop. Having a hard stop or a mental one does not affect leverage, rather that is a function of position size. For example, if I am less than 1 to1 , it is physically impossible to be blown out.

Note: Highly leveraged traders must use hard stops.

 

[romik]

Quote from m4a1:

here's what i learned papertrading in real time so far.

if you pull up a chart at the end of the day, one can clearly see where there are grails and where there aren't. for example, on this chart one can clearly see that there was no grail at 11:15. however, if you were trading in real time, you would have seen a grail at 11:15. this is because the rsi of each bar is recorded using the close price of that bar.

so between 11:00-11:15 there was a grail, but looking at the rsi in hindsight will not tell you that because each bar's rsi is recorded using the close price of that bar.

I had a look at the chart and I think you are mistaken, as I said if one was to look at the chart prior to bar completing and after it completes, then yes there would be a difference, but you are referring to seeing a grail in real-time after 11.15 and not seeing it EOD. I don't think it's possible.

 

[m4a1]

well if it's possible to determine beforehand whether you will have an adverse excursion, then why put on any contracts at the initial entry? just wait until you get a better entry and put on the entire position at the better entry.

the reasoning is similar to your "scaling out is inferior" reasoning, which i agree with.

Quote from Buy1Sell2:

This is for you to decide. I have laid the groundwork. You must now do your homework.

 

[m4a1]

romik i don't know what you're talking about. do this. pull up a 15 min chart. take the high price of the 11:15 bar. if you were trading in real time, then at some point between 11:00 and 11:15 the high price would have been used to determine the rsi and you would have seen a long grail.

i think the reason this isn't apparent to you is because you are using a line chart instead of a ohlc chart which will let you see the range of each bar. why you're using a line chart i don't know.

Quote from romik:

I had a look at the chart and I think you are mistaken, as I said if one was to look at the chart prior to bar completing and after it completes, then yes there would be a difference, but you are referring to seeing a grail in real-time after 11.15 and not seeing it EOD. I don't think it's possible.

 

[romik]

Quote from m4a1:

romik i don't know what you're talking about. do this. pull up a 15 min chart. take the high price of the 11:15 bar. if you were trading in real time, then at some point between 11:00 and 11:15 the high price would have been used to determine the rsi and you would have seen a long grail.

i think the reason this isn't apparent to you is because you are using a line chart instead of a ohlc chart which will let you see the range of each bar. why you're using a line chart i don't know.

line chart has nothing to do with what you are talking about, RSI is the same on any type chart, I reference all 3 types for my own reasons.

I assume you saw a long grail (higher low in RSI) which later changed to a lower low, is that what you are saying?