Pyramiding the ES on trend days

W

wiesman02

Ok. This has been talked about for ages on ET. Lets beat the drum a little more.

Topic:
Pyramiding and averaging up on trend days. I'm assuming most retail ES traders do not do this. In fact, many scale out. Is it just me, or does scaling out seem to be an inefficent way to maximize profits.


A day like today for instance. ES is trending up pre-market, 5 min charts show a nice little base / bullflag, and the first 5 mins shows considerable momentum up. Lets say you trade 2 contracts / $10k in your account.

So lets say you go long 2 contracts 5 mins after open. Next 10 mins shows very bullish action. Many people are gonna scalp this and take their 2 points and run. Some will scale out 1 contract and hold for their next target. But how many are adding at the first pullback assuming they are reading the PA correctly ?

So you have $10k in your account, and your risk control says you trade 2 contracts per $10k. You are 2 contracts long, and u see the market pullback ever so slighty. You go long another. Now you are long 3 contracts. Market pushs. At this point, you are thinking a trend day is intact if you are reading PA correctly, and odds are in your favor that you'll get 3 waves. Market pulls back, add again. 4 contracts in, and looking to exit it all on the next push up.

So my question to you all is. Does anybody successfuly do this ? I can honestly say that I don't. I scale out. Most scale out to "protect profits". But based on my skill set, I think this should be better for me. I'm looking into doing this, and I'm working systematically on putting this into place soon.
 
Backtest how many trend days versus chop days in Es. 80% of the time adding to winners in a mean reversion instrument will have you buying a top or shorting a low.
 
Quote from volente_00:

80% of the time adding to winners in a mean reversion instrument will have you buying a top or shorting a low.
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Quite true Volente_00, numerous studies show that financial instruments like the S&P 500 are mean-reverting.

As such, they do not respond well to trend following techniques or pyramiding schemes.

On the other hand, they do wonder with some Stochastic based trading systems...
 
Quote from volente_00:

Backtest how many trend days versus chop days in Es. 80% of the time adding to winners in a mean reversion instrument will have you buying a top or shorting a low.
More...

ES is used by the big players as a hedge. So it is definitely mean reverting. But there's usually no more than about 4-5 trend days a month (i'm being generous with that number), and maybe 1 of them will be like today. Nice, clean pullbacks.

Been staring at these damn ES charts and trading it for years now. Im aware of the likelihoods of days like this. I'm also pretty good at spotting days like this.

What I am suggesting is not easy. In fact, I bet most people 1) will not be able to detect a day like this quick enough, and 2) not be able to read the price action well enough to capitalize like I am suggesting.

It is quite possible. Probable ? No. Wanna be one of the best ? Capitalize like one of the best. Of course its not gonna be easy. And if I succeed, nobody will believe me anyway, lol.
 
You need rules.
Pyramiding is about money management, just as much as it is about greed.

Lets say you trade 2 contracts / $10k in your account.
That's YOUR rule.

You are 2 contracts long, and u see the market pullback ever so slighty. You go long another. Now you are long 3 contracts. Market pulls back, add again. 4 contracts in, and looking to exit it all on the next push up.
YOUR rule changed... 4 contracts / 10K

I'm sure you know full margin for ES is currently $4180. Therefore an account of 10K is maxed at 2 contracts, UNLESS using day-trade leverage. So your rule must be revised to either take advantage of day-trade leverage or not. If your revised rule includes using day-trade ante in some fashion, pyramiding becomes rule-based from a money management standpoint in addition to setup confidence.

Here are MY day-trade rules as they pertain to sizing.
1) 65% of full margin of the instrument being traded.
2) 65% of full margin of all open positions combined can not exceed the start of day account balance.
3) Booked profits CAN NOT be added to start of day account balance.
4) Un-realized profits CAN be used (in addition to not in use day start balance) in adherence to rule #1.

These rules provide 3 things
1) All but guarantees against blowing up as there is always a not in use "cushion" (compared to much lesser ($500) day-trade margins) which does not include realized profits.
2) Prevents realized profits from being traded.
3) Simplicity means ease of implementation and adherence.


Using your scenario with my rules...
Start of day account balance = 10000
ES ante: 4180 x .65 = 2717
Max ES position: 10000/2717 = 3
Account balance in use: 3 x 2717 = 8151
Not in use balance available for trading: 10000 - 8151 = 1849
Unrealized profit needed to add 1: = 2717 - 1849 = 868


I use an excel spreadsheet where I plugin account balance every morning, and it tells me max sizing for each of the contracts I trade, plus a few maxes for multiple instrument combinations I usually put on. I can play "what-if" combos at any time. Max may or may not mean minimum to your trading. In any case, get yourself some clearly defined rules.
 
Quote from wiesman02:
Of course its not gonna be easy. And if I succeed, nobody will believe me anyway, lol.
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Even if you succeed in pyramiding one or even a few times, you risk losing BIG on the next trade. There's always the chance for a random event that causes a massive gap in the direction you don't want.
Live by the sword, die by the sword.
 
Quote from blakpacman:

There's always the chance for a random event that causes a massive gap in the direction you don't want.
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Savvy traders with large positions ALWAYS protect themselves with relatively cheap put (or call) options, just in case, they are not that crazy or stupid
 
Quote from xelite777:

Savvy traders with large positions ALWAYS protect themselves with relatively cheap put (or call) options, just in case, they are not that crazy or stupid
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I used to do that but I ended up paying too much for the protection and I think it's just too expensive of a method.
 
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