Techniques for Day Trading the ES, NQ, YM, MES, MNQ, and MYM

[Seaweed]

Context is more important than precise entry. And probability works in ones favor very often when averaging down (depending on the context) and by averaging down you can avoid missing a trade trying to get a precise entry. Plus if you at least get a position on and it quickly moves in your favor you at least have a position on when if you wait for a precise entry (which really doesn't exist) you may miss the trade entirely. Finally, averaging down if done right, can increase ones's win rate dramatically which at bare min is a psychological boost and often leads to big profits.

All of these are excellent reasons. I think the trouble most people have with this is that they think you average in just because it went against you, like someone shorting Tesla, and we clearly know how that turned out.

I don't have the math or rules worked out nearly as well as you do, but I see over and over when I analyze my trades how many would benefit from a scale-in vs. a stop-out. Yes, some would have turned into a disaster. So lets say instead of an NQ trade costing me 10 points, it ends up being a 50 point loser once the scale in is factored in. But there are so many trades that were 10 point losers, which would have been 10 or 20 point winners with the scale-in, and so especially because a major support or resistance level wasn't breached. Those will more than compensate for the big loser.

I think the problem is that for some traders, it won't be a big loser, which is still manageable, but rather a gigantic loser that comes about from a margin call or hoping and praying. So the issues isn't that of scaling into a loser, but having no rules for how to exit when it isn't working.

 

[tyro]

I want to insert a note here about averaging down or scaling in if you can’t stomach the terminology of averaging down.

Very helpful, @volpri. May I prevail upon you to post a chart where you might spell this out as well. I do try to follow the charts you post, but the little arrows can be a bit confusing to me. I'll go back through the thread and try to understand better. Thanks for this journal.

 

[volpri]

The last two charts showed one averaging down trade (the second trade. If you blow them up you should be able to see it better. The red triangles are shorting entries OR exiting a long position. The green triangles are long entries OR covering shorts . The last two charts are the same trades. Three trades. One is showing those trades on a 24 hour chart. The other shows those same trades on just a RTH's chart. I marked the thre trades as trade#1, trade#2, and Trade#3.

 

[volpri]

All of these are excellent reasons. I think the trouble most people have with this is that they think you average in just because it went against you, like someone shorting Tesla, and we clearly know how that turned out.

I don't have the math or rules worked out nearly as well as you do, but I see over and over when I analyze my trades how many would benefit from a scale-in vs. a stop-out. Yes, some would have turned into a disaster. So lets say instead of an NQ trade costing me 10 points, it ends up being a 50 point loser once the scale in is factored in. But there are so many trades that were 10 point losers, which would have been 10 or 20 point winners with the scale-in, and so especially because a major support or resistance level wasn't breached. Those will more than compensate for the big loser.

I think the problem is that for some traders, it won't be a big loser, which is still manageable, but rather a gigantic loser that comes about from a margin call or hoping and praying. So the issues isn't that of scaling into a loser, but having no rules for how to exit when it isn't working.

That is exactly why a trader has to develop the skill on WHEN to average down and when to not average down. I don't just average down because I am losing on a position. The context has to support the process. While I do it a lot most traders probably should not do it very often until they learn when and how to do it.

Second, a trader utilizing the concept must ALWAYS have an exit point to dump it should the PA not pan out as expected, then reverse and go WITH the market. When that happens to me (and it does occasionally) I will double or triple up and go in the direction the market is moving. Thus I get back my averaged in lose back quick and quite often make a big profit.

 

[volpri]

Here Tyro. Today Feb 7 all the snapshots were take between 9:00 and 9:30 a.m. central time. Just a few minutes ago. Notice the contexts. First chart is daily, then 60 min, then 15 min, then 5 min. All on a 24 hour chart (or overnight chart) to show the larger context. Finally the last chart is a 5 min chart on the RTH's since the open this morning? So if I were going to possibly employ averaging down would I consider doing it on the short side or the long side? Which side appears to be safer? Where are the pressures in each context at the moment of the snapshot?

 

[volpri]

The above charts are all MES. It is now 9:44 a.m. as I type. The daily, 60 min, 15 min, and 5 min 24 hour chart all show weakness. So the theory is I would averaging down on shorts when the opportunity presented itself. That is on channels or ranges the safer bet is averaging down on the short side. Or scaling in if you wish to call it that. HOWEVER look again at the last chart chart. The regular trading hours chart. That is the chart I will be trading off from. The others (24 hour) are there to give me a view on context. Now looking at the RTH 5 min chart that I will again be trading off from; should I employ averaging down? No not yet. Why not? because it appears to be in a forming range. Gap down open. Equals weakness equals good for scaling in on the short side. HOWEVER at this point I don't yet know if it is indeed a range or a PB from the open that will result in a BO to the upside. So I need 20 bars or more sideways to down on this RTH's chart to even consider averaging down on the short side. it is 9:52 a.m. as I finish typing this. Lets wait and see what happens.

 

[volpri]

Here is what the RTH chart looks like at 9:57 a.m. central time.

18 bars in since the open.

Price is hugging the top of the range.

Price also barely broke below the opening bar on bar 7 from the open and above the open bar on bar 13. We are on bar 18 (last bar)

Price is in a BO mode. That is it could BO topside above that first bar high and have FT and it could do likewise on that last bar the 18th bar. Or it could just go back into the range. I want to see what happens after that 18th bar before I consider shorting or averaging down. And I want to see 20 or more bars sideways to down. I am waiting to see more weakness.

 

[volpri]

OK 10:11 a.m. central time. We got a DT and a couple of bars with tails on top and price going back a little deeper into the range. We got 20 bars sideways to down. At this moment looking OK to averaging in shorting near the highs but will give it a few more bars.

 

[volpri]

OK 10:23 am Still not enough weakness in the immediate context i.e. 5 min RTH's to consider averaging in on the short side. Still in BO mode. I marked the 10th and 18th bars will explain later.

 

[volpri]

Waiting to see if price will close the opening gap or if the BO on bar 23 (last bar) will fail and price go back into the range now established or will it have FT and become a successful BO to the upside. So no shorting yet.