Vista - thanks for your comments. Yes, your are correct: MAE = max adverse excursion, and likewise, MFE = max favorable ...
Answering your question will probably open a can of worms here, but I will try to explain nonetheless. Your choice of the word confidence is interesting, because it is confidence that I am striving for. My entries can sometimes be quite early (could this be related to the patience problem mentoned above?
) I think it is safe to say that trying to use a 3 or 4 tick stop will often result in accepting many small losers. OTOH, 8 to 10 tick stops can sting quite a bit. But with my limited experience in this mkt, I've noticed it is quite common for the mkt to retrace from this same 8 to 10 tick range, in relation to my entry.
Back to that confidence thing - for whatever the reason ( I suppose a couple of sessions w/ Ruth Barrons Roosevelt would lay bare some truths) once I am in a trade, I find it much easier to hold if I am prepared to add to the position at the next logical (maybe the 20 sma, a fib level, a trend line, prev. S&R, etc.) price point. This immediately begs the question: " why don't you just accept a small loss, and look to reenter at a more advantageous price". My only answer (and strictly tied to my personality) is that I do not shake off losers quickly, and thus, will not be prepared to reenter at the appropriate time. For me, it provides a calming effect to know ahead of time that I will work with the trade within a 3-4 point range.
Also, this "average down" style must be done within the proper context, as pointed out by nkhoi's statement. To those of us employing price/volume analysis, this means that I must see volume activity that supports my initial reason for entry: for ex., I'm anticipating a non-dom traverse on decreasing volume, and my reason for entry is still valid, altho my original entry was ill-timed. I should restate: I have based this journal on a hypothetical 20K acct, which I feel supports a position of up to 4 cts. You can see where I built up w/ 3 cts on a trade today (#'s 12, 11, 10). And, again, Bracket Trader unfortunately does not individually timestamp additional contracts added to an open position. Hmm - I just noticed something else - BT also 'averages' the MAE for the entire position, and just fills in the cells all the same - that sucks. To be accurate, MAE @ #12 = 3.75, #11 = 2.50 and #10 = 1.25
Couple of final caveats: I do not press these kind of trades - they are almost always used as a means for exiting w/ a small profit. If I am just totally wrong on mkt direction, 9 times out of 10 I will still be afforded a profitable exit - but I've also learned this is not a time to 'hope'. The opportunity to exit may only be offered once, and ya best just take it and regroup.
And, I do not recommend this to anyone - its just something I've worked with for long enough to believe in for my own needs. And it goes without saying, if volume is pegging extreme levels against my position, I just get the hell out.
Sorry for this verbose and rather poorly
explained reply. Best regards ...
. I had notes trying to figure how the **** could someone have reversed here, or here or here. . . Then made notes (assumptions vs. taking it on face value) on other possible finer tools that "had" to have been used as there was just nothing there on the chart that would tell you to reverse at that particular spot.