Setting stop, Averaging down 1 time, whipsaw

[1a2b3cppp]

Quote from schizo:

I apologize in advance for sounding like a jerk but this is a typical noobian fantasy. Don't even fall for this utter crap.

• First of all, when you got in long at 1000 and the price drops to 995, that's a loss of 5, not a gain! If you now short at 995, well, you just locked in that loss.

• 
  
  Hey
  
  Please note that I said "-5 point gain," not "5 point gain."
  
  Negative five point gain.
  
  A five point loss.
  
  
  
  
  

  [*]Second, even if you shorted ES at 995, you would need to be a pretty good timer in order to capitalize on this "hedging" strategy. Otherwise, you could end up losing more than you initially thought. Let's suppose ES kept falling, and falling, and falling. It's now at 988 and you're seriously thinking about covering your short from 995--only if you weren't plagued by a nagging doubt in the back of your mind. IS THIS REALLY THE BOTTOM? If it isn't, then the long position you're currently holding will lose more money.

How I see it is that this is not a feasible solution for no other reason than the fact that you're NOT a great timer. If you were, you wouldn't have gotten here in the first place!

I know. That's why I said one of the sides (long or short) has to involve averaging down in order to eventually be profitable.

So you didn't sound like a jerk, I think you just misread my post

 

[1a2b3cppp]

Hedging one side again the other at the same time can be insanely profitable BUT (and its a very, very big "but" (lol, insert J Lo joke here)), you have to be able to predict range. As long as price stays within a range that you can afford the drawdown, you will keep making money long and short at the same time over and over all day.

As soon as price goes one tick too far, you take a huge collosal loss.

So it becomes about predicting when price won't go past your range boundaries as opposed to predicting direction.

That may be harder or easier than predicting direction.

It's actually kinda similar to when people do that one option play (short strangle???) where as long as price stays within a range, you make monies.

I've run numerous simulations using this strategy and range days, it's super profitable, both long and short at the same time. I can post some P/L statements if you want to see. But occasionally it does bottom out and you lose BIG on the averaging down side. Like I said, gotta predict range. Sometimes if I don't feel like using two accounts, I'll do it with ES (short) vs. YM (long) because they're mostly correlated closely enough that it still works. I wouldn't throw NQ into the mix, though, because it kind does its own thing

I'm not sure I would go live with this strategy without a huge bankroll and some hardcore stats on historical ranges.

 

[PocketChange]

Establishing a trading range is key. You can actually trade both sides and have 3 - 5 steps in your trade sequence for averaging down and pyramiding. All is great and your system is invincible inside your trading range. ie. add Increments: 1, 2, 6, 18, 54 contracts spaced out one strike. Covers a trading range 5 strikes up or down. Every oscillation inside of the range generates profits.

Problem is once you've breached the range one side is up the creek accumulating losses at your maximum position size of 54 contracts. Doesn't take much to wipe you out when you do the math...

What can you do? wrap your trading range with OTM options. A dollar for dollar options hedge would be cost prohibitive with all of your profits going to options insurance. But if you can size your hedge to reduce the inevitable blow up to 1/3 you should consistently make profits.

The options hedge game is an art of its own. ie. Use SPX options to hedge ES futures. After hours liquidity issues... as long as you are able to establish and liquidate your hedge without too much blood loss you can build a profitable system.

Quote from 1a2b3cppp:

Hedging one side again the other at the same time can be insanely profitable BUT (and its a very, very big "but" (lol, insert J Lo joke here)), you have to be able to predict range. As long as price stays within a range that you can afford the drawdown, you will keep making money long and short at the same time over and over all day.

As soon as price goes one tick too far, you take a huge collosal loss.

So it becomes about predicting when price won't go past your range boundaries as opposed to predicting direction.

That may be harder or easier than predicting direction.

It's actually kinda similar to when people do that one option play (short strangle???) where as long as price stays within a range, you make monies.

I've run numerous simulations using this strategy and range days, it's super profitable, both long and short at the same time. I can post some P/L statements if you want to see. But occasionally it does bottom out and you lose BIG on the averaging down side. Like I said, gotta predict range. Sometimes if I don't feel like using two accounts, I'll do it with ES (short) vs. YM (long) because they're mostly correlated closely enough that it still works. I wouldn't throw NQ into the mix, though, because it kind does its own thing

I'm not sure I would go live with this strategy without a huge bankroll and some hardcore stats on historical ranges.

 

[Pension_Admin]

Quote from Redneck trader:

Innovest-11

Work on creating better set ups based on price and S&R - of the stock you’re trading – also create tighter / more precise stops…

eta - Please note stock is singular not plural – find one and stick to it for now

The stops – if/ when hit – are such that you know the trade, and the reason you entered are invalidated

Also be absolutely certain of the time frame you are trading – stick to it – and base entries, exits, stops off that

And it appears you could use some screen time - just sitting patiently and watching Sir

RN

+1

 

[NoDoji]

Quote from innovest_11:

The reason I say whipsawed by setting stop loss is:
for example 1,
I bought Aapl at 199.1, stop at 198.9, thinking breakout, then it retrace, I got stopped
out, then it advance further up, I will be winning without stop
example 2:
if I bought aapl at 199.1, stop at 198.9, then got stop out, then it fall straight down to 198, and continue falling, setting stop will save me only losing -$60, if I don't have stop and avg down, I'm losing -$330 already an if fall further, can lose up to -$700 inclusing the 1 time avg down

so currently stop loss will save me from big losses but stop out from winners too, and also buy sell buy sell many times many small losses also become -300 or -400, worse is seeing it rebounce after stop loss

but without stop loss, i'm open to loss of -600 to -1k plus, but I have some big winner if big uptrend, worse is sometime -2k losses, don't want to take, I keep it overnight and next day bcome -7k losses!

Any advice from traders welcome

You're overtrading instead of waiting patiently for high probability setups and/or you have no idea how to place stops that are likely to survive. Whenever I enter a trade based on what I think will happen, but the confirmation has not yet occurred, I get stopped out. It doesn't matter if I use tight stops again and again, or if I place a wide stop, it ends badly because a true setup has not yet occurred. I can be completely right on direction, but too early in makes "right" meaningless.

I've had some overtrading days in the past few months, thankfully rare. They were losing days despite several awesome trades occurring. What would happen on these days is I would get into a trade, move my stop too soon, get stopped out, watch the trade move big time in my favor without me on board, then the cycle of insanity would start. I'd be looking to "get it back" and I'd enter a trade too soon before it was "ripe", then get stopped out, try again, stopped out, and finally I'd catch the confirmed setup, watch my P/L get back near break even and...exit the trade (whew, back to even!).

Do you know what happened next? The trade moved further in my favor big time. Why? Because it was an actual CONFIRMED setup. So as a result of impatience and overtrading, I let my losing P/L influence a truly excellent setup and I'd leave 2-3 times on the table what I took out of it.

I started asking myself: What would happen if I waited patiently and ONLY traded one confirmed setup like that each day and allowed it to run? The answer is that I'd make enough each day to pay my bills!

Please post a chart of the AAPL trade above and indicate your entry exit points and a bunch of us will tell you what you did wrong

 

[NoDoji]

And I'll add: The urge to average down comes from poor timing. Poor timing results in whipsaws when you use stops, tempting you to use wider stops, then eventually tempting you to average down because price always "comes back".

The temptation to average down is simply another result of getting into a trade too soon, before it's confirmed. You form an opinion about a pending price reversal (usually because you believe price is now too high or too low) and you're afraid if you don't start getting into the trade right now you might miss a move.

It's dangerous unless, as someone already said here, you have a plan for it in advance with max loss for the trade, period.

Confirmed (with trend) trades are SO easy. Someone on ET recently called trend-following "the soft underbelly of the market". It sure is. And every trend exhausts itself, but if you wait for that lower high or higher low before playing the reversal into the new trend, you'll be a happier and more profitable trader.

 

[NoDoji]

Quote from innovest_11:

Then i discover averaging down. Good, most days ended with breakeven or gains of few hundred to 1k+, then once in a while come a big monster which wipe out all my gains, -7k to -8k

ET is littered with the casualties of "averaging down" battles, most recently: http://www.elitetrader.com/vb/showthread.php?s=&postid=2731995#post2731995

I challenge everyone to direct me to a post on ET where a trend-following day trader wiped out days, weeks, months of gains or maybe blew out completely.

(I limit this challenge to day trades because if you've built a huge trend following position on a swing trade, you could easily blow out on a sudden gap against you - SWM, HURN, MA, etc.)

 

[limitupmike2]

1. don't use stops
2. lower size
3. take the heat until your guess is correct
4. LOWER SIZE.. so even if stock drops 2 bucks it does not affect you

 

[jficquette]

Quote from innovest_11:

hi all

Setting stop has never been easy for me, buy sell buy sell, got whipsawed and lost huge, $1k-$2k per day

Then i discover averaging down. Good, most days ended with breakeven or gains of few hundred to 1k+, then once in a while come a big monster which wipe out all my gains, -7k to -8k

Then i fine tune to averg down 1 time only, losses stop at -$1k+

i tend to cut by midday if things don't work out

Now i wanted to try setting stop, but just afraid that i might get whipsawed left right and left with -1k loss again, any advice?

Set a stop. You can always get back in if you still like it.

 

[No.Heat]

There is no reason whatsoever to add to a losing trade, none at all, why because you can always get back in. Why would you ever want to see red grow ? You need to see green grow, not the other way around.

Reduce size when it goes against you, add it when it's going in your favor, but be smart about the places you choose to scale in or out and even more careful with how much size you choose to add.

For instance, don't add to a long at a higher high, wait for the retest of support at the very least, little things like this help but you need the right state of mind, adding to losers is and will never be the solution. Don't forget to add fractions of your original size, the higher you add the higher the chances of trend reversals.

The solution is not to be right, the solution is to make money.

You can be right and lose, worry about making money the rest is not important.

One more thing, don't be fooled by randomness, noisy charts are the devil.

No Heat