Pyramiding: Playing with the market’s money
- Thread starter vivaskyliska
- Start date
Wouldn't a lack of sellers choke supply, increasing price?
The difference here is that you are referring to such a situation in general, which is fine, and I am answering his question regarding a specific case which he felt could be answered only in hindsight.
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Playing with the markets's money
is a poor title and may indicate you do not understand things as well as you should.
Money won is your money and not the markets.
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Adding to a position because the add has worthwhile positive expectation and is within your sensible risk parameters is ok. Winning momentum traders sometimes do this.
Adding to losers because the add has worthwhile positive expectation and is within your risk parameters is also ok. Winning mean reversion traders sometimes do this. However, it is easier to get in trouble here if you do not understand what you are doing well enough or if you tilt.
(Note: successful traders often do off the table thinking about risk management on corelated events and uncorrected events)
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If you think adding to wins by itself will give you positive expectation, you are incorrect.
Positive expectation (Edge) comes from being paid more than is long-run breakeven on your wagers.
Adding to a position is done because the addition is a good bet.
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1.Positive expectation (Edge)
2. Risk control
3. Worthwhile volume
Are all needed to prosper
Pros weave expectation, variance and volume into a livelihood.
"Know your edge, exploit your edge— survive the game" — Blair Hull.
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Price initially rises because of a lack of sellers, not an overabundance of buyers. Then more buyers come in with a further rise in price. So on and so forth.
Any strategy that nets me a worse average price is not a strategy I would employ.
The average price is not what is theoretically important when adding. Does the add have worthwhile edge and is it within reasonable risk control is.
However, sometimes shielding a trading, competitive or life weakness with a "rule" can be helpful. Sometimes realizing we do not have the skill to do something that others can is important.
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What is your p&l distribution of trades where u do your averaging in technique?
I do something v similar. I have 70% losing trades, 20% small winners which dont quite offset the losers and the remaining 10% which are big winners and make all the money.
I scale into LOSING trades and average 70% to 90% winning trades. Rarely under 70%. I never have cared for scaling into winners. I will do it some times but it isn’t as profitable as scaling into losers, at least for me.
In terms of a long position...If there is value and i get in and it goes against me but my premise is still correct ..just my entry was off ...and the market hands me the opportunity to buy something of value, at an even greater discount, well caramba, I’m taking it. Wouldn’t you? Most won’t. So sad.
In terms of a long position...If there is value and i get in and it goes against me but my premise is still correct ..just my entry was off ...and the market hands me the opportunity to buy something of value, at an even greater discount, well caramba, I’m taking it. Wouldn’t you? Most won’t. So sad.
Hm..hmm something to think about boys..and girls...