How much money would you need to Martingale your way to profits?

[NoDoji]

Quote from 1a2b3cppp:

Remember, neither I (nor seemingly anyone else) can predict direction.

I average down because I don't know when or where price will reverse, but I know that at some point, it will.

"You don't need to know what is going to happen next in order to make money." - Mark Douglas

You need to learn how to trade.

Here is a very useful reference for learning basic high probability setups:

http://www.daytradingcoach.com/daytrading-technicalanalysis-course.htm

These patterns work in all time frames.

Step 1 (the easy step): Memorize the patterns by studying as many static charts as possible in your time frame, then choose the ones you like best.

Step 2 (the hard step): Learn to recognize the patterns as they set up real time.

Step 3 (the hard work step): Analyze charts every day in great detail until you determine how best to enter a trade, where to place a survivable protective stop, and how to target a reasonable profit zone. Also, define rules for when to let a winner run beyond the initial target zone.

Step 4 (the impossible step): Every time you see one of your chosen setups forming, place the order that will trigger the entry, then place the protective stop and initial target orders. Leave the stop alone until it either takes you out of a losing trade or price gets to your profit target or beyond.

If you read Mark Douglas' "Trading in the Zone" at least four times, Step 4 should be readily achievable.

Good luck!

 

[1a2b3cppp]

Quote from Wulfrede:

You will do better by averaging *up*.

Think of it this way:

If you average down, your position will always be big when you are wrong and small when you are right (i.e. it takes off in your direction right away). Why risk 10 to make 1?

If you average up, your position will be big (and get bigger) when you are right and small when you are wrong (i.e. you stop out quickly).

Do the math. In a trending regime the latter is a distinctly winning game; the former is a recipe for disaster. Can a market go straight up or down with just a few shallow, non-actionable retracements? It can and, many times, it has. Look at some charts, including those of SPY.

So it's not a question of looking for a particular direction and averaging down but a question of identifying the trading regime and getting bigger when right.

Cheers,
/Wulfrede

Averaging up raises your average cost, and a smaller move against you turns your gain into a loss.

 

[Maverick74]

Quote from 1a2b3cppp:

Averaging up raises your average cost, and a smaller move against you turns your gain into a loss.

This is nonsensical. You are worried about a small loss with averaging up but have no problems with a huge devastating loss holding all the way down? How do you rationalize this?

 

[PocketChange]

Lets give this a look from a different perspective:

Instead of doubling down your averaging down and scalping oscillations inside a trading range covered by options:

Starting Feb 25, 2011
Market 1300
Expiration: Mar 18, 2011

Open and close ES contracts per the table below:

Short Play
-1 @ 1340 Exit 1300 Stop: 1350
-1 @ 1330 Exit 1300 Stop: 1350
-1 @ 1320 Exit 1300 Stop: 1350
-1 @ 1310 Exit 1300 Stop: 1350
-1 @ 1300 Exit 1250 Stop: 1350
Insurance/Cover:
3 - 1350 Calls


Long Play
1 @ 1300 Exit: 1350 Stop: 1250
1 @ 1290 Exit: 1300 Stop: 1250
1 @ 1280 Exit: 1300 Stop: 1250
1 @ 1270 Exit: 1300 Stop: 1250
1 @ 1260 Exit: 1300 Stop: 1250
Insurance/Cover:
3 - 1250 Puts


Budget $1000 for options insurance.
OESH1 P1250 @ 3.00 = $150 x 3 = $450
OESH1 C1350 @ 3.00 = $150 x 3 = $450

When price reaches either of the edges (1250 or 1350) close all.
Otherwise you scalp profits on each cross over of 1300.

ie. If price dips to 1280 and retraces to 1300 you would close 1 @ 1280 and 1 @ 1290 for $1500 scalp.

If price hits 1350 you:
Close 5 short contracts at a loss of (-$7500)
Close 1 long @ 1300 for gain of $2500
Close 3 ITM 1300 Calls for gain of $7500
Less the options cost (-$1000)
Approximate Profit $1500 + any scalps

This algo works well in volatile markets allowing you to scalp oscillations inside the range and exit the game in profits if either of the edges are hit before March 18.

You lose when no oscillations get scalped and your options expire on March 18 with a close near the edge.

If you martingale doubling size at each increment: 1,2,4,8,16 you may increase profits from scalping but will require more options to cover the range and if you get caught taking a loss near the edge it may be unrecoverable. Scaling 1,2,2,2,3 may be manageable and you may also consider pyramiding the exit range to scalp the other side.

 

[sumfuka]

Quote from 1a2b3cppp:

Averaging up raises your average cost, and a smaller move against you turns your gain into a loss.

I think if a small move go against you, you would probably end up as break even, cause your 1st entry made money.

But for the sake of discussion, lets look at the chart of 'AXTI' and lets say you put in 1,000.00 on 2/10/11. And you start doubling down every 2 days. You'll be down $34,000 as of this weekend. :eek:

 

[1a2b3cppp]

Quote from Maverick74:

This is nonsensical. You are worried about a small loss with averaging up but have no problems with a huge devastating loss holding all the way down? How do you rationalize this?

There will never be a huge loss with proper sizing and entries. And I already stated I don't care about having drawdown for extended periods of time.

When you're averaging up, how do you know when to exit? How do you know when price will stop going up? You don't. So how do you know when to stop adding to it?

 

[1a2b3cppp]

Quote from sumfuka:

But for the sake of discussion, lets look at the chart of 'AXTI' and lets say you put in 1,000.00 on 2/10/11. And you start doubling down every 2 days. You'll be down $34,000 as of this weekend. :eek:

Where in this thread did I say to do this on individual stocks to to double down every two days? Adding to your position would be done mathmatically, not based on time.

 

[Maverick74]

Quote from 1a2b3cppp:

There will never be a huge loss with proper sizing and entries. And I already stated I don't care about having drawdown for extended periods of time.

When you're averaging up, how do you know when to exit? How do you know when price will stop going up? You don't. So how do you know when to stop adding to it?

This still makes no sense. Your stop should be determined by what you are willing to lose. It's not a matter of "knowing". Say you want to keep your risk at $500 max. So you buy on the way up and place your stop where you will be at a $500 loss. If you get stopped out, so be it, move on to the next trade. It's not that hard.

And yes, there will be a huge loss when you average down. You are just hoping it will be temporary. But what's worse is, you will earn less then a CD for 98% of the time. You'll be stuck long a one lot on a million dollar account. Let's say you started this program in 2002 when the s&p was at 750, over the last 9 years you would have made less then 1% over the entire decade. Not 1% a year but 1% total!!!!! How can give that much free money away?

Just buy the bond, collect the interest and enjoy your life. I honestly don't understand your objection to this.

 

[NoDoji]

Quote from 1a2b3cppp:

I average down because I don't know when or where price will reverse, but I know that at some point, it will.

Quote from 1a2b3cppp:

There will never be a huge loss with proper sizing and entries.

You don't know when or where price will reverse, yet you believe you can control loss with proper sizing and entries.

Why endure long term draw down and risk of ruin, when you can find just one high probability setup that involves minimal risk and produces good profit over time?

I will give you a high probability setup and you can paper trade it and see how stress-free and profitable it is:

CL (crude oil futures) -

1. Get up early in the morning about an hour before NYMEX pit open (9:00am eastern time).

2. Look at what price has done in the overnight session and determine if there's a trend or a range.

3. If there's a trend in progress, find the price of that last pivot high (if an uptrend) or last pivot low (if a downtrend).

4. Place a buy stop 1 tick above the last pivot high (if an uptrend) or a sell stop 1 tick below the last pivot low (if a down trend).

5. As soon as your order is lifted, place a protective stop .15 from the entry price trigger and target a profit of .20 or more (sometimes price will run .50 or more in just minutes. Once I had a breakout trade run .50 in just seconds.

If there's no trend, wait until a trend asserts itself.

If you don't know how to identify and qualify a trend, you're about 10 years away from the experience needed to consider counter-trend fading as a profitable strategy.

 

[1a2b3cppp]

Quote from PocketChange:

Lets give this a look from a different perspective:

Instead of doubling down your averaging down and scalping oscillations inside a trading range covered by options:

Starting Feb 25, 2011
Market 1300
Expiration: Mar 18, 2011

Open and close ES contracts per the table below:

Short Play
-1 @ 1340 Exit 1300 Stop: 1350
-1 @ 1330 Exit 1300 Stop: 1350
-1 @ 1320 Exit 1300 Stop: 1350
-1 @ 1310 Exit 1300 Stop: 1350
-1 @ 1300 Exit 1250 Stop: 1350
Insurance/Cover:
3 - 1350 Calls


Long Play
1 @ 1300 Exit: 1350 Stop: 1250
1 @ 1290 Exit: 1300 Stop: 1250
1 @ 1280 Exit: 1300 Stop: 1250
1 @ 1270 Exit: 1300 Stop: 1250
1 @ 1260 Exit: 1300 Stop: 1250
Insurance/Cover:
3 - 1250 Puts


Budget $1000 for options insurance.
OESH1 P1250 @ 3.00 = $150 x 3 = $450
OESH1 C1350 @ 3.00 = $150 x 3 = $450

When price reaches either of the edges (1250 or 1350) close all.
Otherwise you scalp profits on each cross over of 1300.

ie. If price dips to 1280 and retraces to 1300 you would close 1 @ 1280 and 1 @ 1290 for $1500 scalp.

If price hits 1350 you:
Close 5 short contracts at a loss of (-$7500)
Close 1 long @ 1300 for gain of $2500
Close 3 ITM 1300 Calls for gain of $7500
Less the options cost (-$1000)
Approximate Profit $1500 + any scalps

This algo works well in volatile markets allowing you to scalp oscillations inside the range and exit the game in profits if either of the edges are hit before March 18.

You lose when no oscillations get scalped and your options expire on March 18 with a close near the edge.

If you martingale doubling size at each increment: 1,2,4,8,16 you may increase profits from scalping but will require more options to cover the range and if you get caught taking a loss near the edge it may be unrecoverable. Scaling 1,2,2,2,3 may be manageable and you may also consider pyramiding the exit range to scalp the other side.

:eek: