Position sizing and adding to winners.

[SimpleMeLike]

I get what you're saying. Scaling trades is an added complexity, but I wouldn't rule it out on that basis alone.

Complex things become simply with training and understanding.

If I add to a winning trade - I always have a target of where I ultimately want to exit. So on the few occassions I've done it so far, it's been pretty easy I'll say.

That is right. That is why I say, write down ALLLLL ways you want to exit with multiple contracts. Take a week to decide the ways.

Then everyday just start tracking or go back test.

This is what I am doing with my own exiting methods. I have 6 ideas to exit a position. Well, I am testing them all. One exit method is exit at 3RR, well guess what. That method have big drawdown and can get about 5 losses in a roll. I personally do not like that, but still tracking data to see how it do over about 200 trades. I am tracking 2RR, it does pretty good. And I track price action trailing exit methods too.

NOW, I have an idea of what "I" like AND AND that can make me money. But it all started with writing down and researching different exit strategies first. You can ask members on the ET in a different thread to help you too.

 

[KCalhoun]

When markets are choppy it's hard to scale in consistently for swingtrading. Overall I like to add to swings in trending charts, eg buy $23 add $28 then use breakeven stop.

For daytrading it's useful to tighten stops midday and 3pm since reversals occur sometimes.

 

[Laissez Faire]

One exit method is exit at 3RR, well guess what. That method have big drawdown and can get about 5 losses in a roll. I personally do not like that, but still tracking data to see how it do over about 200 trades. I am tracking 2RR, it does pretty good. And I track price action trailing exit methods too.

I think fixed exits are a bad idea unless you're a scalper going in/out a lot of times throughout a day.

Instead 2RR, 3RR - how about start measuring the size of the swings of what instrument you're trading and use that as a guideline?

I know how much ES generally moves before it retraces, so that's helpful to me.

Anyway - you seem to be on the right track by actually testing and finding answers.

 

[bone]

I’ve got quite a bit of experience with scaling a Commercial portfolio.

Scaling by far works best for swing trading / position trading. There are some real negatives associated with scaling scalps and day trades.

The most success I’ve seen with scaling came from adding to a long term trade that was deep in the money green. I’ve seen some traders get really wealthy pushing winners. I’ve seen traders lose everything adding to losers.

Don’t add to a losing position. Add to a winning position.

 

[bone]

The problem with adding to a loser is that it works until it blows up terribly. It enforces what I personally believe to be the most destructive behavior a trader can have.

The trader will, let's say, buy a one lot in ES. It goes a couple tics against him - he buys another one lot. In his mind, he is 'averaging' into a position and 'improving' his entry price point. If the market continues to go against him - he will almost assuredly buy more. Eventually, the selling stops and buyers reenter the market. He sells out his position for a scratch or a profit.

Since this proved successful, he will almost certainly do it again and again.

But since he is sitting such a long and agonizing time with a losing position - he feels relieved when the market gets back to scratch or better yet modestly profitable territory and he exits his position. He lives to trade another day. The 'adding behavior' gets reinforced over and over. The trader has numbed himself to the pain of sitting with huge stinkers. {It's not a loser until I take it}

Naturally, there comes a time when the market doesn't come back and if the trader doesn't liquidate his clearing firm will do the dirty deed for him.

Ninety percent of the traders that I have seen that got blown out were adding to losers. It's a guess but I feel confident about it. Maybe even more.

 

[Laissez Faire]

The problem with adding to a loser is that it works until it blows up terribly. It enforces what I personally believe to be the most destructive behavior a trader can have.

Exactly. The worst thing about it is that it can work for a long time, but eventually you get caught in that one bad trade which can blow you up.

I'm sure quite a few BTFD guys must have blown their account averaging down when the market dropped tremendously this year. And I've seen people even here on ET who keeps adding, adding and adding and when the top or bottom is finally in - they must have blown their account.

If a super disciplined trader can do this according to a pre-defined plan/risk parameters, then maybe. But it does not seem like a robust methodology to me and certainly not a trading style I'm interested in. I'd rather work on my entries or take my stops and get back in.

 

[KCalhoun]

The problem with adding to a loser is that it works until it blows up terribly. It enforces what I personally believe to be the most destructive behavior a trader can have.

The trader will, let's say, buy a one lot in ES. It goes a couple tics against him - he buys another one lot. In his mind, he is 'averaging' into a position and 'improving' his entry price point. If the market continues to go against him - he will almost assuredly buy more. Eventually, the selling stops and buyers reenter the market. He sells out his position for a scratch or a profit.

Since this proved successful, he will almost certainly do it again and again.

But since he is sitting such a long and agonizing time with a losing position - he feels relieved when the market gets back to scratch or better yet modestly profitable territory and he exits his position. He lives to trade another day. The 'adding behavior' gets reinforced over and over. The trader has numbed himself to the pain of sitting with huge stinkers. {It's not a loser until I take it}

Naturally, there comes a time when the market doesn't come back and if the trader doesn't liquidate his clearing firm will do the dirty deed for him.

Ninety percent of the traders that I have seen that got blown out were adding to losers. It's a guess but I feel confident about it. Maybe even more.

Outstanding points, you're exactly right. Adding to losers is a bad idea.

To help me with discipline, for swingtrading I scale out partially on trades that end the day under prior day's low. I add to winners closing above pd high.

See my article in this month's TASC, subscribers:

http://technical.traders.com/archive/archivelogin.asp?file=\V38\C05\049CALH.pdf&src=SC

 

[bone]

Yep. The problem with adding is that the trader is almost certainly trading some sort of volatility or trading range-based system. Could be channels, bands, S/R levels, pivot points, etc. etc..

And of course, you can never know when the range-based market action converts into a trending market with strong momentum. Technical indicators like momentum, rate-of-change, various oscillators... they are all lagging. In order to detect a substantial variance in the velocity or speed of price changes - you have to sample a continuous on-the-run pool of data. Point being - you'll see a meaningful chart change when it is entirely too late. And if you cut down on your sampling periods, you'll get whipsawed on that.

Momentum or ROC on a tic chart is different than on a one minute chart is different than a five minute chart is different than a fifteen minute chart... and on and on. Sample 30 periods on a tic chart or 14 periods on a one minute chart? Every trade-off has a cost.

If a super disciplined trader can do this according to a pre-defined plan/risk parameters, then maybe. But it does not seem like a robust methodology to me and certainly not a trading style I'm interested in. I'd rather work on my entries or take my stops and get back in.

 

[Hotcakes]

Learn how to average up into Trends. Its how everyone does it.

 

[oraclewizard77]

The problem with adding to a loser is that it works until it blows up terribly. It enforces what I personally believe to be the most destructive behavior a trader can have.

The trader will, let's say, buy a one lot in ES. It goes a couple tics against him - he buys another one lot. In his mind, he is 'averaging' into a position and 'improving' his entry price point. If the market continues to go against him - he will almost assuredly buy more. Eventually, the selling stops and buyers reenter the market. He sells out his position for a scratch or a profit.

Since this proved successful, he will almost certainly do it again and again.

But since he is sitting such a long and agonizing time with a losing position - he feels relieved when the market gets back to scratch or better yet modestly profitable territory and he exits his position. He lives to trade another day. The 'adding behavior' gets reinforced over and over. The trader has numbed himself to the pain of sitting with huge stinkers. {It's not a loser until I take it}

Naturally, there comes a time when the market doesn't come back and if the trader doesn't liquidate his clearing firm will do the dirty deed for him.

Ninety percent of the traders that I have seen that got blown out were adding to losers. It's a guess but I feel confident about it. Maybe even more.

This is good advice. However, I think if you set a stop and don't lower that stop, you can add another contract before price reaches the stop. If price goes a little in your direction and you could either add or wait till price comes back close to entry to add, again having a hard stop. Targets are of course hard. With 2 contracts, I would like to exit one not too far far say for a scalp and let the other go to a higher target. Sometimes I will leave my stop alone since price could always come back to entry price again so you don't always want to stop BE.