How to "sit" on a position during a big move

achilles28 · Aug 31, 2010

Usually time frame dictates amplitude. Toggle the interval to find some big waves, catch a pullback, and sit. Often times the trend will explode, and just sit back and let it ride. When it falters and slows, reversals are usually close by. Risk:Reward is critical. VIX dictates operational timeframe. Higher VIX = smaller time frame. Visa versa. Large time frames can be used to gauge direction and lower for entries. I refer to both, but usually, don't need too.

The key is to get into the habit of trading BIG waves. Stop going for peanuts. Over time, this messes with a traders psychology. Repeatedly hauling in big scores calms the psyche and liberates it from that cycle of worry.

LeeD · Aug 31, 2010

Quote from Ghost of Cutten:

This is clearly logically inconsistent. The same stock at the same point in time cannot be a buy for you at 30 and not a buy for you at 30. It is either a long, a flat, or a short. It can't be two at the same time.

I think here you make a strong assumption that each entry on a trend trade is manged separately... as if entries are independent trades.

Quote from TradingScrub:

The problem, in my opinion, is that once a move has begun you generally experience a sharp increase in volatility.

Suppose the price is $20 and the trader thinks this is a likely start of a trend, the price can move to a likely target of $50. The initial stop-loss is 5$. The trader wants to limit risk at $500. So, the trader buys 100 at $20 and sets stop to $15.

Suppose the price has risen to $35. The target is still $50 but the volatility increased. So, the reasonable stop-loss is now $10. If the trader buys $100 more at this price and moves the stop on the whole position to $25, the trader still risks to loose the original $500 on the whole trade (2 entries combined).

As a whole trade concerned, the trader risks $500 to make $4500 if the tragte of $50 is reached.

Suppose the trader missed the initial entry and is going to buy at $35. Then with the same risk of $500 (and a reasonable stop loss of $10 per share) a trader can only buy 50 shares. If the target of $50 is reached, with the same risk of $500 on the whole position the trader will only make $750 compared to $4500 with early entry and scaling-in.

LeeD · Sep 2, 2010

I guess I "win" as the last poster.

[Proximo] · Sep 6, 2010

Can you STFU already.

Everytime I read one of your posts its the same shit 'gyrations this gyrations that -- maximum swings open to close and you end by saying your methodolgy should exploit these swings'

Do you cut and paste the same post over and over?

Rant over -- Carry on :]

Quote from Cheese:

'Sitting' is usually known as holding, namely to hold a position. For daytrading the beginning and ending of holding is a function of reversing. You reverse (buy) on the end of downswing and you reverse (sell) on the end of an upswing.

The daily session (eg CL) is made up of gyrations, being the sequential swings up and down (or vice versa), flowing from the open to the close. You methodology needs to exploit those swings.

To identify how you should set up your system, look at the metrics of your market. Look at a number of trading days. In each one, add up the maximium points in each swing. For example in CL you could treat 35 points as the minimum for each swing. The combined maximums of the days swings is the days total maximum. Now you begin to see what is available to you. From there you set about the task of adopting or devising a system to capture as much as you can from each swing.

Redneck · Sep 6, 2010

I only skimmed through the responses but somehow I get the impression weâre not sureâ¦

========================================================================================

My simple minded answerâ¦

1.) Enter a position

2.) For what ever reason the trader gets a read this move will be a âbigâ one (big not equating to long term â thatâs swing trading, or investingâ¦ and requires different approaches)

3.) Scalp a portion of the position and leave the remaining to run.

Okay run whereâ¦

To your various âalready definedâ target areas (yes identifying them can be done)

Okay how do I define theseâ¦.

1.) Measured moves
2.) Value areas
3.) Pivots
4.) S & R lines from previous PA

Take you pickâ¦

So now whatâ¦

Monitor PA and see if it keeps supporting your initial readâ¦, remain in the position if it doesâ¦, exit remaining position if it doesnât

But I donât feel like sitting there â then enter a trailing stop (the setting of which youâve already determined by testing on the stuff you tradeâ¦ and selected so it is not routinely taken out â by the typical pull backs â during an average dayâs PA)

Nothing glamorous â or complicatedâ¦ But then neither am Iâ¦

RN

jem · Sep 6, 2010

Quote from Ghost of Cutten:

Yeah, it's irrational to view house money as any different to initial capital. Otherwise two people with identical risk profiles, capital base, and positions, would have to trade the exact same market very differently, which is clearly illogical. Or if your clerk accidentally exited your whole position by mistake, you would not be able to put it back on again at the same price, which is again nonsensical.

Trend-following suggests that the expectation on a trend-trade is significantly better once the trend has got underway and made a significant move. Whereas at the initial breakout point, the chance of being wrong is pretty high. Thus it makes sense, purely on trade expectation, to cut losses quickly at the breakout point, but to be much more tenacious in holding through pullbacks once a good profit has been built up. None of this has anything to do with it being open profit vs initial capital, it is solely due to the (presumed) character of major trends (choppy and prone to failure early on, more resilient and able to bounce back from corrections later). However, some trend-followers IMO have not grasped this distinction, and thus use the psychological crutch of house money vs initial capital to rationalize the correct behaviour. A bit like a fighter pilot might check their six for superstitious reasons - their action makes sense but not for the reasons they think it does.

Interesting point.

But, Van Tharp... whom I used to visit with (a decaded ago) when he came out to San Diego to visit his son had educational material which made the case for trading profits more aggressively... I have not looked at it for a while but I believe it smoothed returns.

I am pulling this from memory but I believe the point was it reduced portfolio heat. I did not take his classes on the subject but he did share some of the concepts with me.

charts · Sep 6, 2010

Quote from [Proximo]:

Can you STFU already.

Everytime I read one of your posts its the same shit 'gyrations this gyrations that -- maximum swings open to close and you end by saying your methodolgy should exploit these swings'

Do you cut and paste the same post over and over?

Rant over -- Carry on :]

Use "ignore" ... Reading somebody's rants is not fun either ...

fly down · Sep 6, 2010

Quote from Ghost of Cutten:

Let's have a thread on "sitting" i.e. holding on to a position that is working well during a long-term trend. What techniques do you use to stay in for a big move,

You create an initial target where to exit the trade and stick to it.

Handle123 · Sep 6, 2010

I trade three timeframes intraday, swing and long term commodities, so each for me have different ways to trail for "runners" as I generally take profit along the way. For longer term trades, I found what worked best for me, as soon as I could get to breakeven stops, from daily bars, I would revert to weekly charts as I use monthly, then weekly for deciding on long term trades. I use either RSI or MACD looking for weekly divergence's, and wait till near the close of Friday, and if the close is beyond last weeks high if I am short, I get out. My protective stops stay at Breakeven stops so I don't get whipped out of little correction. Does it work every time, nothing works every time, I sometimes lose chunks of profits, but it does allow me to catch some monster trades, which makes up for the others.

tomahawk · Sep 6, 2010

You're basically talking about trying to catch the meat of long-term runners, Turtles-style. Therefore, why not use some of their exit techniques to help you stay in the trade? ... MA signals, std. dev. multiples, and the like.

No matter what you use, obviously you can always get back in if you see something that suggests you bailed too soon ... this is the beauty of trading.