Position sizing and adding to winners.

Just to share. My position on adding to winners is that it doesn't work. I based this on extensive back-testing done years ago. After reading this thread, I went to re-visit this idea(cos it's conceptually so sexy).

The conclusions are the same. Adding additional positions will increase the risk profile of the trade as well as degrades the total profit potential vs an "All in-All out" approach.

Moving stops in your favor to maintain the risk profile increases the probability of the trade hitting your stop loss as well degrading profit(double bummer).

If it works for you go for it. I simply can't make it work no matter how I back test it.
 
Take a trade based off a high time frame on ES such as 1 hr or 2 hr chart. Scale down to 5 or 15 min chart. See a setup on lower time frame, add to position as long as u can move up the stop so that $ wise, its the same $ wise as original stop. Often times, this will skew your risk to reward in your favor.

For example, u buy ES with 10 point stop 10 point target. U add to the trade when u are up 5 points. Place stop @ break even. Let it ride to the full 10 point target. Your risk to reward just skewed from 1:1 to 1:1.5 .
 
bitstream_ryder said:
Just to share. My position on adding to winners is that it doesn't work. I based this on extensive back-testing done years ago. After reading this thread, I went to re-visit this idea(cos it's conceptually so sexy).

The conclusions are the same. Adding additional positions will increase the risk profile of the trade as well as degrades the total profit potential vs an "All in-All out" approach.

Moving stops in your favor to maintain the risk profile increases the probability of the trade hitting your stop loss as well degrading profit(double bummer).

If it works for you go for it. I simply can't make it work no matter how I back test it.
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Thanks for sharing! :)

Any more details on your back-test? Which instrument? Time frame?

I definitely think it's strategy/time frame dependent, but the general idea should be that you're adding to a trade both as it goes in your favour and as price behaving in a certain way opens the door for continued further movement in your favour. For example in a strong trend. But that you couldn't know in advance if the trend was strong or not.

Mathematically, though, going all in/all out will always be more profitable on the same trade sequence where you otherwise would add.
 
Laissez Faire said:
Hi all,

Happy Easter! :)

I'd be curious to hear from (day) traders what your approach is with regards to position sizing.

Do you keep it fixed at say 1-2 % per trade or do you have another approach?

Generally, I've always used a fixed position size throughout the day in relation to my capital, but lately, I've experimented a bit with both varying position size and adding to winners.

For me, this may mean trading with my smallest size early in the morning, but increasing size and/or adding to a winning trade as/if my confidence increases.

I haven't fully worked it out yet, but can use yesterday as an example. I had a strong long bias prior to the Open, but still, due to poor execution I managed to start the day in the red for a small drawdown. However, as the opening session progressed, I became increasingly confident that I was stopped up prematurely and I kept getting buy signals to support my thesis.

So, I entered long with the same size and double up with twice the size at a slightly higher level, effectively adding to a winning trade. This trade paid for my early loss and then some.

I know some people like to average down too, but I don't think I'm interested in trying that. I'd rather stop myself out then and get back in at the same or a better price.

Thanks in advance for any comments here.
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Hello Laissez Faire,

I only trade 1 contract for now.

I have read many sources say take off half position size at certain profit target, and then management the remaining position to ride a winner.

Even when I increase position, I rather do all in and all out trading management.

NOW, even though I rather do all in and all out, I will have to test the half off and trail the rest for about 100 to 200 trades to see if I like it and which way makes the most money consistently.

Just have to test and see what works.
 
SimpleMeLike said:
I have read many sources say take off half position size at certain profit target, and then management the remaining position to ride a winner.

Even when I increase position, I rather do all in and all out trading management.

NOW, even though I rather do all in and all out, I will have to test the half off and trail the rest for about 100 to 200 trades to see if I like it and which way makes the most money consistently.

Just have to test and see what works.
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Hi, SimpleMeLike,

Thanks for your comment.

I agree that testing is the only thing that can give answers and it may also be a matter of personal preference and general trading style/strategy. Regarding scaling out - I can see that work too, but it would require a high win percentage as you would be taking your stops on full size and your winners on smaller size as you're scaling out.

It's probably also a function of how many contracts you're able to hold. Scaling probably makes more sense if you're trading 10 + contracts compared to 2 contracts.

I see myself as an all in/all out trader most of the time, but I'm thinking that adding to a winner or scaling out can be useful tactics at times.
 
bone said:
I know it sounds hokey and terribly OG - but start a daily personal trading journal. I don’t mean here on ET; but on your PC in Word or in a spiral notebook. You will be able to check yourself in terms of destructive emotions, repeating mistakes, and tracking / developing ideas.

I tell my own clients that eliminating mistakes is positive account equity and that one thing can make or break your trading future. Eliminating mistakes pays itself forward exponentially. I’ve seen brilliant ideas and sound trading systems get sabotaged countless times by foolish position management practices and destructive negative emotional feedback loops.
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bone,

This is tremendous great advice. I will be honest, I think my trading results will improve for the better, if I do 3 things. 1. Stop making those entry and trade management mistakes. 2. stop missing trades. 3. Stay consistent.

Keeping a daily journal and HONESTLY tracking my results helps.
 
Laissez Faire said:
Hi, SimpleMeLike,

Thanks for your comment.

I agree that testing is the only thing that can give answers and it may also be a matter of personal preference and general trading style/strategy. Regarding scaling out - I can see that work too, but it would require a high win percentage as you would be taking your stops on full size and your winners on smaller size as you're scaling out.

It's probably also a function of how many contracts you're able to hold. Scaling probably makes more sense if you're trading 10 + contracts compared to 2 contracts.

I see myself as an all in/all out trader most of the time, but I'm thinking that adding to a winner or scaling out can be useful tactics at times.
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You're welcome.

Now let me tell you. A con to scaling out is knowing when to scale out too. This could lead to confusion and overwhelming energy consumption. Then your mind will always say "man I wish I had exit here or kept this many contracts here or did this or did that" Sheriff Analysis will kick in. Then you out trying to enjoy the day and then mind thinking "man, I should have scaled out here and scaled out here, and man I wonder if I add to winners at 20 ticks and 10 ticks, what if I move my stop back and scaled that out too" Then you thinking, how will I know if it will make alot of money. You can't even enjoy the day thinking about these trade management approaches. We are not Goldman Sachs traders. We have one brain and 2 arms. Goldman Scahs can put together an idea and test it in about a few days, you and I will take months testing just one approach. Then you be 60 years old still trying to decide "man I wonder if I just scale out here and this, or maybe I break even after 30 ticks" Keep it simple and stick to one way.

matter of fact man, do this. WRITE down ALL the ways you want to enter and exit trading positions. I mean spend a week writing them ALL down. Let say you get 10 ways. Now go back test them for 200 trades. By the time you get to 50 trades, your ass is going to be tired and say "man, let me stick to this easy thing I been doing and go sit down somewhere". That is what I did, after about 100 trades, I had an idea of what I like and don't like.

This is why I like the All in and All out. I enter the trade, put a stop, put or profit target. Sit down. I also have a trailing trade management method for some trades as well. With all in and all out, less thinking and mind games. Also with all in and all out, less physical work and watching and guessing.

I do not like adding to winners, cause then I will not know when to exit all those contracts. This is why for me, all in and all out is just easier, I mean its enough just reading the market and making decision to enter.
 
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SimpleMeLike said:
read my last comment and tell me what you think. I updated it.
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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 simple 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.
 
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