How to add to a winner?

M

mad_badger

How do I handle risk when considering adding to a winning trade?

Since adding to a winner worsens a trade's avg price, what should I be considering when adding a trailing stop? Should the profit target remain unchanged? Should the trailing stop be a price point (S/R), or should it be based on a fixed dollar/percentage of my paper profits (e.g. don't give back more than 1/2 paper profit)?

Any suggestions?
 
You could always treat the two as separate trades. Either a price level stop or a trailing stop work, I prefer manually moving a price stop for clean trending markets and trailing for moves that have gone parabolic... mmm, and when you pyramid you should build a heavy base. Your adds should be smaller in size than your initial base, at most 1/2 of it. Each subsequent add should be smaller than previous --inverted pyramids aren't too stable... it should help you by not changing your average price as much and wiping you out on a contra-move.

Sorry if this was cryptic I'm in a rush
 
Imo, I think it's easier on the brain to add in a different account.

Then you aren't messing around with averages and quantities. just treat the whole shebang as a new trade.
 
One of the best lessons I learned from 2 trading pros is when you add make sure it is a smaller unit size than your original position. Know why? Because the likelihood of a pullback.

Trailing stop is going to have to be determined by the perceived volatility of the market.
 
First of all you need to know your percent risk exposure or portfolio heat after you add to a winner. Do anything you want provided you have tested the method and it has attractive statistical parameters. To make a long story short, do whatever increases the expectancy of the specific trading method.
 
Quote from mad_badger:

How do I handle risk when considering adding to a winning trade?

Since adding to a winner worsens a trade's avg price, what should I be considering when adding a trailing stop? Should the profit target remain unchanged? Should the trailing stop be a price point (S/R), or should it be based on a fixed dollar/percentage of my paper profits (e.g. don't give back more than 1/2 paper profit)?

Any suggestions?
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One thing I do is to only add about 1/2 more to the postition, any more than that seems to exponentially increase the chances of wiping out exisiting profits.

The other thing is to be extra patient when adding so you get a good fill and don't chase the market.

I also liked the earlier suggestion of treating the "add' as a separate trade.
 
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