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

Just remember, no one has ever gone broke taking reasonable profits.

Everyone who has gone broke has either held on to winners too long and watched them become losers, or held on (or added on) to flat out losers for too long.

If you want to try to be an overnight millionaire, sure, put on a huge position and sit on it, ride out the swings and pray it goes your way. Good luck. If you want to be a consistently profitable trader you better have some discipline and rules/practices as for when to get in and out of your trades, whether up or down.
 
Quote from Expect Positive:

TF focuses on closed-trade equity. I don't think TF sees a beginning cocoa trend as somehow inferior to a winning, older trend in coffee.

There's really no way for a pure trend follower to sit there and say, "I'm going to take some of this winning position off today." As a result, closed-trade equity ends up being the closest thing to order you can think about on a daily basis as a TF.

If the system rings the bell and says place the trade, then, at that point, all trades are equal. Take every trade, or something like that.
More...

If it was rational to make trade decisions based on open vs closed trade equity, then it would make sense to be both long and flat at the same time in the same market, based purely on your entry point, all other factors being equal. This is clearly illogical - if all other factors are equal, there can only be one optimal position. The present trade expectation of a trend trade clearly has nothing whatsoever to do with the entry point. Long 1 lot is going to make an identical profit from today onwards, whether you bought at the beginning of the trade or just got long at yesterday's close. Thus open/closed equity distinctions make no rational sense. Trade expectation, risk, and risk preferences are what matter, not artificial accounting distinctions.

"I don't think TF sees a beginning cocoa trend as somehow inferior to a winning, older trend in coffee."

You judge a system by its actions not the beliefs of its designers. If the start of a trend was not lower probability then there would be no purpose in prematurely exiting the trade with close stops, and slight price increases would not justify pyramiding. If mid-stage trends were not more robust, widenening trailing stops would not be justified or profitable.
 
I think it depends on if you are trading on purely technical reasons rather than fundamental reasons. I am starting to gravitate towards more fundamentally based plays, over the 2 week to 1 month time frame. In that case, I have usually done enough DD that I am pretty sure that I know something the market does not know yet, but will discover before I get out.

In that case, it is still somewhat difficult to hold for more than 25-30% gains, esp if they come within a couple of weeks, but I have been getting better at it.

For those that are trading on purely technicals, I gotta say I don't know how you do it. I still feel, that, for ME, trading on techs is trying to find patterns out of random fluctuations in the PPS of a stock, and I suck at it.

g
 
Quote from fframe38:

There could be some mixing of timeframes (the trade timeframe, and smaller timeframes - for example daily chart vs hourly chart, weekly chart vs daily chart etc) if you want to optimize this a bit more. In other words, have longer term indicators of when the trade is over - trendlines, hitting or violating major support/resistance, crossing major moving averages, etc. If any of those are violated, you are done with the trade. However, the same indicators on the shorter timeframe are cues of when to lighten up the position, add to it, or reinstate the position.

Say for example with a long position we buy 5 units. Put the original position on and ride the trend as planned on trade timeframe. Sell stop is placed where the trend will be considered over. Meanwhile, monitor the faster timeframe. If signs of exhaustion, rolling over, loss of momentum, breaking short-term trend occur, then sell off 1 or 2 units of the original position. You can even sell off all of them if desired, but have a definite way to reinstate the position on further trending behavior (such as breaking out over consolidation to new highs, etc). Only re-add the units once the consolidation has shown signs of ending and trending behavior is evident again.

The advantages to "trading around the position" is that if there is a quick reversal to the downside and the trend dies, you will get out faster if you have front-run the exit on the shorter timeframe. If a trend dies and the market goes listless and trendless for a long time, your money isn't tied up riding back and forth without generating returns. Also, if a normal looking consolidation suddenly accelerates to the downside and turns into a trend reversal (ie flash crash), you don't ride a fully loaded long position into a crash.
More...

That's an interesting idea. But don't you need to be more aggressive in your re-entry (after exiting due to a short-term counter-trend setup), once the clear counter-trend has gone? If you wait for a slam-dunk re-entry point, you risk missing a good chunk of the rebound, during that uncertain period before it becomes clear the long-term trend has reestablished itself.

IMO you need to re-add at least some of the units as soon as the short-term is no longer clearly bearish. Remember you are not trying to pull off the perfect trade here, you are trying to simply avoid the clearly worst times to be in the long-term trade. If it's 50/50 in the short-term, then you want to be 100% long because of the favourable long-term outlook.
 
Quote from TradingScrub:

Just remember, no one has ever gone broke taking reasonable profits.

Everyone who has gone broke has either held on to winners too long and watched them become losers, or held on (or added on) to flat out losers for too long.

If you want to try to be an overnight millionaire, sure, put on a huge position and sit on it, ride out the swings and pray it goes your way. Good luck. If you want to be a consistently profitable trader you better have some discipline and rules/practices as for when to get in and out of your trades, whether up or down.
More...

True. But once you have the risk control down good, you want to start improving your ability to exploit opportunities. It is easy to ride a big move with no risk control, and it is easy to have good risk control with no ability to ride big moves. What's hard is doing both on the same position :)
 
Quote from jajuanm2:

How you enter is key with holding for bigger moves. Need to get in near the start of the move so that the swings don't take you out.
More...

This is where I disagree. IMO this is just a psychological illusion. Consider this:

Let's say a stock is going from 20 to 100 (e.g. you have reliable insider info and know it's going to happen). If you enter with a close stop, and rely on getting in early so you can "withstand the swings" then it means that if you bought at 20, the stock is still a long at 30, 40, 50, 60 all the way up. Whereas if for some reason you missed buying at 20 (let's say you were in hospital off sick, or your software had a glitch), and it is now 30, then it cannot be a buy.

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.

Therefore, the optimal position right now, whether to be long, flat or short, cannot depend on the entry price at all. It can only depend on the current price, risk, risk vs reward, win rate, max drawdown, fundamentals etc - which are identical from today's price regardless of what price you entered at.
 
One thing I keep into consideration is the effect of option expiry week on your long. For practical purposes that week is a washout to detemine your trend on a long term hold. Option traders rule that week.

Suppose 10 days before expiry you note the strike, follow which way the stock is moving in relation to what strike the option traders are heading.

I'd expect the trend to continue on its course the following Tues or Wed after expiration (at this point in time, the overall market conditions are at play, sigh, another consideration).

My point though, is, to discount the effects of options on your goal and not get shaken out.

Options tend to head to the strike or smack dab in the middle of two.
 
1. My models are designed for intraday and swing trades, but I always take a serious peek at Monthly, Weekly, and Daily data to get some perspective on how "enthusiastic" I might be in terms of extended follow-through on a position.

2. I really like to scale positions. I won't carry a loser, but if a trade is a winner and I like it's future prospects, I'll close out half of it to book the profit at close and carry the balance. I will frequently scale trade around my model bias during the course of a trading day and carry a smaller core.

3. Trailing stops work great and I scale those as well - they keep you in a trade.

4. Don't be surprised if you come to the conclusion that you'll need stops about as wide as your profit target in order to make it through that original break-out and into the trend unscathed. Markets correct, and from there they either fail off or continue on to trend.
 
Quote from Ghost of Cutten:

This is where I disagree. IMO this is just a psychological illusion. Consider this:

Let's say a stock is going from 20 to 100 (e.g. you have reliable insider info and know it's going to happen). If you enter with a close stop, and rely on getting in early so you can "withstand the swings" then it means that if you bought at 20, the stock is still a long at 30, 40, 50, 60 all the way up. Whereas if for some reason you missed buying at 20 (let's say you were in hospital off sick, or your software had a glitch), and it is now 30, then it cannot be a buy.

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.

Therefore, the optimal position right now, whether to be long, flat or short, cannot depend on the entry price at all. It can only depend on the current price, risk, risk vs reward, win rate, max drawdown, fundamentals etc - which are identical from today's price regardless of what price you entered at.
More...

Yes, ideally you should look at any trade as if you were flat and make a decision based upon what the market is telling you. Just because something has gone up significantly doesn't mean you should no longer buy it. The stock that just jumped from 20 to 30 could be going all the way to 40, why miss the last 10 points just because you were late?

The problem, in my opinion, is that once a move has begun you generally experience a sharp increase in volatility. A $20 stock that has gone up to $30 is typically going to see far more dramatic swings in price at $30 than it is in a consolidation range at $20. By getting in at the consolidation range (the beginning of the move) you can set a clear stop not too far out of the money that is unlikely to get hit unless you are wrong. At $30 your stop with the same loss threshold is far more likely to get hit in random chop or fake-outs due to the volatility. To account for this you need to widen your stops, thus increasing risk, or deal with getting stopped out for a loss more frequently. Either way it makes it more difficult.

Due to changing risk/reward, the trade you made at $20 may no longer be worth trying at $30 even if you think it's still going up. Getting in at $20 you ideally only risk a single small loss and stand to make a significant gain. Getting in at $30 you risk either a much larger loss by widening your stop, or more frequent small losses. On top of this the move could be done and have little upside.

This is why in an earlier post I said I piece out of winning trades. Once you have some gains and have reached that riskier point of the trade with increased volatility it is time to start taking profits. This way if it turns around and pulls all the way back you at least made a little, and if it keeps going you at least have some left to capture it. In the rare circumstance where you are up, there doesn't appear to be increased volatility to the downside, and you still think it's going your direction (ie: the example of a stock going from 20 to 100 that you gave) jump in, hold on, or even add on to make a ton of money.
 
The more I think about it I guess we're essentially saying the same thing in that you need to constantly be evaluating the risk/reward regardless of where you get in.

I would counter that it is much easier to evaluate the risk/reward at the start of a move (a consolidation range) than it is during a move and you're often better off just looking for the next set up. Yeah, the real pros can jump in and perfectly set their outs and price targets to maximize their risk/reward, but I'm not that good yet in most cases hah.
 
You must log in or register to reply here.
Back
Top