<i>"If I come across a setup that is good but not great I will hit it with a 1/4 position. If I stop out on that and it turns into a very good setup I will hit it with a 1/2 position. And, if it turns into a great setup, then you can probably imagine I will hit it with a full position. In addition to this I will average into a position if I think the market is just giving me noise. This way I don't get tagged."</i>
Like everything else in trading, that all depends. Our profession is nothing more than endless shades of gray when it comes to rules, guidelines and parameters.
All week long I worked the "average up" tactic of money management you describe above. Not to be confused with averaging down or inverted risk to reward scales. The benefit of averaging up is adding to positions while price action moves in favor... allows one to "safely" leverage bigger positions with smaller total risk.
The disadvantage of averaging up is getting whipped out or "tagged" in sideways volatility. Most of my entries today and thru the week were profitable on the first leg in. But... adding the second 1/2 position after price moved in favor too often stalled near there, reversed, took out the entire position for par or small loss before heading back in the favorable direction again.
In other words, had I merely taken one entry each trade and managed that without adding on, all five sessions would have been solidly profitable results. There was nothing wrong with entries... at all. It was purely the trade management portion which clashed with price behavior. Overall the week was profitable, but far less than it would have been using all-in and all-out management technique.
Now, had this been more of a swinging or trending week instead of pounding sideways volatility, the results from averaging up would have been enormous. I worked a trade management approach that loves deliberate tape action but hates gyrational pounding tapes.
From the very lows today I repeatedly bought the market (ER2) fully expecting an afternoon lift to pivot point or higher. Got stopped out of every trade after the second piece was added. Leaving the first entry alone, any / all of the longs would have held and easily caught the expected updraft.
Moral of the story? There are three distinct parts to every trade. The entry method. The management method. The exit method. All are equal but different components of any approach. Scaling in or averaging up works great in gentle, deliberate tapes. It suffers greatly in wild gyrations and exaggerated chop.
I re-learned that lesson for the umpteenth time this week myself
Like everything else in trading, that all depends. Our profession is nothing more than endless shades of gray when it comes to rules, guidelines and parameters.
All week long I worked the "average up" tactic of money management you describe above. Not to be confused with averaging down or inverted risk to reward scales. The benefit of averaging up is adding to positions while price action moves in favor... allows one to "safely" leverage bigger positions with smaller total risk.
The disadvantage of averaging up is getting whipped out or "tagged" in sideways volatility. Most of my entries today and thru the week were profitable on the first leg in. But... adding the second 1/2 position after price moved in favor too often stalled near there, reversed, took out the entire position for par or small loss before heading back in the favorable direction again.
In other words, had I merely taken one entry each trade and managed that without adding on, all five sessions would have been solidly profitable results. There was nothing wrong with entries... at all. It was purely the trade management portion which clashed with price behavior. Overall the week was profitable, but far less than it would have been using all-in and all-out management technique.
Now, had this been more of a swinging or trending week instead of pounding sideways volatility, the results from averaging up would have been enormous. I worked a trade management approach that loves deliberate tape action but hates gyrational pounding tapes.
From the very lows today I repeatedly bought the market (ER2) fully expecting an afternoon lift to pivot point or higher. Got stopped out of every trade after the second piece was added. Leaving the first entry alone, any / all of the longs would have held and easily caught the expected updraft.
Moral of the story? There are three distinct parts to every trade. The entry method. The management method. The exit method. All are equal but different components of any approach. Scaling in or averaging up works great in gentle, deliberate tapes. It suffers greatly in wild gyrations and exaggerated chop.
I re-learned that lesson for the umpteenth time this week myself