<i>"Nice to see your words back on ET. I was under the impression that you have abandoned this site and after not receiving a reply to my last e mail to you, I though that you either do not care or took one of those "once in a lifetime" 2 months vacation to some exotic destination where only the chosen can afford to venture. Welcome back!"</i>
Saxon, I did reply to each of your emails. I use Yahoo to quell 100s of spams and bugs daily... hopefully the replies found you.
There is absolutely nothing "chosen" about me, anything I've accomplished is possible for anyone else who works hard enough.
As for the most exotic venture I've done this summer, has to be attending the unlimited-class tractor pull at Hemlock Fair last Friday night. It's something else standing trackside while tractors pushing 6,000+ horsepower blow by on the hooks. That said, the crowd looked like a casting call for "Deliverance II"... before the beer tent opened. Once the beer flowed for a few hours, the crowd's appearance degraded severely from there.
You'd have to experience both to fully understand.
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The true test of what you're trading now does not come thru strings of wins. You will be tested when a couple of max-loss trades are hit in succession. Whether that's from simple human error (I succomb to that near every day) or a session where resistance or support are mere cobwebs on a chart, you have some big-loss events (relative to profit size) waiting for you.
If you anticipate that inevitability and deal with it correctly on a fiscal and most importantly emotional basis, all may be well. Only time will tell.
**
I frequently scale in (never out) or "pyramid" trades myself. The difference is, I add to positions when price action has moved in my favor. Scaling in or out can only happen when we trade more than one contract(unit), of course. Attached is a chart from 6/20 as one example.
The ES gapped up off the open on its high print for the day. Gap was quickly closed, price action tried to hold pivot support and failed. Signs of weakness.
Tape bobbed sideways for hours and then began breaking lower off the 1pm mark as it so often makes a move at that hour. The ES gave a couple of sell (and one buy signal) prior to the 2pm mark.
1 - Around 2:30pm, the ES gave a sell signal around 1543, give or take a couple of ticks as always. That all-in / all-out trade quickly worked for +4pts or greater, before 3pm.
2 - A quick bounce had the ES hitting another sell signal at or above 1538. Let's say we short two units at 1538 with customary -2pt stop.
3 - Price action quickly breaks down to 1536. Our trade is now good for +2pts or better. We have two choices: manage that position for profit, or risk those unrealized gains for bigger profit. Either decision is fine, and neither is an exact science. I do it on a case-by-case basis of how the chart measures = reads.
Assume we short another two units at 1536 = stop 1538. The first trade has stop trailed to entry/par with no further risk to initial capital. The second trade has our usual risk level suitable for account balance. See what we've done? Now using 2x normal leverage while only risking 1x normal $$. Twice the profit potential for normal level of risk.
Of course if the Fed cut interest rates 50-basis while this short trade is open, we'd have a black swan loss greater than anticipated and 2x worse than would have been. Also something to think about.
If we hadn't shorted the second position and price action reversed right from there, the first trade alone is out at par. The max exposure of risk exists until price action moves roughly +1pt in favor. Then we can trail our stop to blended entry par for the 2x position, in this example it'd be 1537.00 for both units combined.
If price action bounces from there and takes us out at par, we lose the unrealized gains from what would have been a slightly profitable trade at 1540 alone. I consider +2pts ES a marginal profit trade, we each have our own definitions of such.
So... scaling into a directional move never risks more than what we would expose on a single trade under normal circumstances. We still have 2x dollar leverage at risk in a black swan event. We also have as-of-now unrealized gains from the first position at risk.
4 - In this case the session trend continued, we cover at 1533 (or lower) and the scale pays off big. I only scale in (never out) when price action appears to be making a defined directional push, which is often very visible on the charts.
That's another way of scale trading which uses big leverage in our favor of risk/reward balance.
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BTW... true dollar leverage of any futures instrument means absolutely nothing, absolutely zero to a trader. Who cares what the underlying (notional) value of the entire S&P 500 contract is? That does not make one whit of difference to us as traders... zilch.
We are leveraging $$$ in our account, using futures contracts as the medium of exchange. If we trade one crude oil contract, one gold contract, two soybeans and five ES contracts all open in the morning and have three crude oil and ten ES contracts in the afternoon position inside same account, what's the notational value of our combined positions' total leverage?
<i>It does not matter</i> is the correct answer. The ONLY THING that matters is how many $$ are present in the account versus how many potential $$ lost on a trade are at risk. In plain speak, $100,000 account balance risking -$2,000 on all open trades combined makes absolutely no difference what the underlying value of instruments are. Why in the world would it?
When thinking of leverage, the only thing we concern ourselves with is how many $$ are reasonably at risk in each trade, worst case (normal) scenario. Whatever underlying value of the widget symbol we opt to play is irrelevant.
Keep those profits bigger than losses, and all will be well
