Good stuff, @comagnum.
Do you ever enter with your maximum risk all in or do you always dip your toe in the water first with say half your maximum size?
Position sizing and adding to winners.
- Thread starter Laissez Faire
- Start date
Good stuff, @comagnum.
Do you ever enter with your maximum risk all in or do you always dip your toe in the water first with say half your maximum size?
I always enter my day & swing trades with my smallest size on, only exception is for scalps which I don't do all that often.
This is a good article on this topic
https://www.danielstrading.com/2010/11/11/the-number-one-rule-of-trading
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Hi Laissez Faire,
If I understand you correctly you are asking 2 things.
1)Should one vary position size based on confidence of market direction
2)Should I add to winning positions
1)Should one vary position size based on confidence of market direction.
Short answer is a resounding "No". Short unsophisticated answer is : Suppose you feel confident that the market is bullish but got stopped out of your long position due to bad entry for 1% of equity, so you double up for the next long entry. You get stopped out again and your loss is now 3% of equity. Do you double down again?
A series of losses WILL happen, you just don't know when and this could cause a major dent in your account, but that's a small problem. The bigger problem I find is how those escalating losses affect your trading psychology and performance in the subsequent trades (usually negative impact).
2)Should I add to winning positions
I have never successfully back-tested or live traded a strategy where adding to winning position was positive in the long run. I could write a short book on why this is a bad idea but I'd rather you back-test or forward test this to convince yourself.
With all this being, there are going to be trading situations and instruments where 1) and 2) will make sense but I have yet to come across a situation where this makes sense.
I suspect you don't keep a trading journal or if you do, it might not be detailed enough. If you have, you could easily review your last 30 trades to see if doing either 1) and/or 2) would have improved your results. When I review my trades for the day, I have a section where I theoretically detail new concepts; eg had I implemented this rule (scaling in, scaling out, increasing TP ect...), would that have improved my result? This will give you an idea if a new trading rule would be a good idea.
Hope this helps.
If I understand you correctly you are asking 2 things.
1)Should one vary position size based on confidence of market direction
2)Should I add to winning positions
1)Should one vary position size based on confidence of market direction.
Short answer is a resounding "No". Short unsophisticated answer is : Suppose you feel confident that the market is bullish but got stopped out of your long position due to bad entry for 1% of equity, so you double up for the next long entry. You get stopped out again and your loss is now 3% of equity. Do you double down again?
A series of losses WILL happen, you just don't know when and this could cause a major dent in your account, but that's a small problem. The bigger problem I find is how those escalating losses affect your trading psychology and performance in the subsequent trades (usually negative impact).
2)Should I add to winning positions
I have never successfully back-tested or live traded a strategy where adding to winning position was positive in the long run. I could write a short book on why this is a bad idea but I'd rather you back-test or forward test this to convince yourself.
With all this being, there are going to be trading situations and instruments where 1) and 2) will make sense but I have yet to come across a situation where this makes sense.
I suspect you don't keep a trading journal or if you do, it might not be detailed enough. If you have, you could easily review your last 30 trades to see if doing either 1) and/or 2) would have improved your results. When I review my trades for the day, I have a section where I theoretically detail new concepts; eg had I implemented this rule (scaling in, scaling out, increasing TP ect...), would that have improved my result? This will give you an idea if a new trading rule would be a good idea.
Hope this helps.
Professional writers & newbie traders enter with small position & with poor confidence.
And as price moves in their favor, they add more position with high confidence.
Professional traders enter with big position and with confidence.
And as price moves in their favor, they progressively lighten the position.
And as price moves in their favor, they add more position with high confidence.
Professional traders enter with big position and with confidence.
And as price moves in their favor, they progressively lighten the position.
Ok, doesn't change the fact that they generally aren't just pressing buy and sell on their entire orders all at one level or all at one time. Generally speaking they are getting a net weighted average sometimes buying above the net average and sometimes below. So, it's still a form of adding to a trade. Not trying to be overly picky. I just don't think your statement is nuanced enough and way to cut and dry.
I checked, starting with a smaller size and adding while profits rise brings me less money than going in full size at once.
I also know why. I wait till the trend is strong enough before entering. There are several reasons for that:
· Risk of reversing of the direction or a losing trade is smaller, so less losses to recover and ability to take a higher leverage to compensate for the delayed entry.
· In most trades I can never get fills at better levels when I spread my size over several entries because of the fact that in a good trend prices go always further in the good direction with no or very small retracements. So the consecutive entries will each time leave more and more bread on the table. Which is not the case when going full in at once.
I told before: the system to follow depends on the specific way you trade and the characteristics of your system. There is no magical formula that works for everybody every time. Find out what works for YOU the best.
I agree that most posted methodes are not nuanced enough and way to cut and dry.
The title of this thread is also wrong. It is not adding to winners. It is adding to a position that is supposed to be a winner. A huge difference.
I also know why. I wait till the trend is strong enough before entering. There are several reasons for that:
· Risk of reversing of the direction or a losing trade is smaller, so less losses to recover and ability to take a higher leverage to compensate for the delayed entry.
· In most trades I can never get fills at better levels when I spread my size over several entries because of the fact that in a good trend prices go always further in the good direction with no or very small retracements. So the consecutive entries will each time leave more and more bread on the table. Which is not the case when going full in at once.
I told before: the system to follow depends on the specific way you trade and the characteristics of your system. There is no magical formula that works for everybody every time. Find out what works for YOU the best.
I agree that most posted methodes are not nuanced enough and way to cut and dry.
The title of this thread is also wrong. It is not adding to winners. It is adding to a position that is supposed to be a winner. A huge difference.
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Thanks, comagnum. I'm happy to say that I've never averaged down or been tempted to. I've always known about the concept of adding to winners, but it's only recently I've been implementing it and I do believe it has some promise for my style of trading.