A little too deep for my taste.
The Mental Game of Trading and Power vs Force
- Thread starter Sprout
- Start date
The only reason for scaling into a losing position or even martingaling into a losing position is to put more probabilities back into ones favor that the trade will be a winning exit as opposed to a losing exit. It is counter intuitive. It is capitalizing on the markets tendency to probe all session long. Watch 1m and 5m charts. Markets all day long are probing back and forth on 1 min and 5m charts. These probes can last seconds or few minutes. This back and forth ….push and tug …is territory for averaging down and even martingaling if one can deal with more potential temporary risks.
In such a context the probability of a successful trade increases. The down side is less reward. There are three variables. Risk, reward, and probability. If one is adjusted if affects the others when structuring a trade. If I assume more risk by averaging down or using a martingale strategy I increase my probability of getting out in an overall winning trade, although I may lose on some contracts in the trade but win on the other contracts in the trade, however overall it is a winning trade. It is better to win even if the reward is smaller than to lose on a temporary probe against one’s position. Especially if one is a scalper.
I am speaking here in terms of very short-term trading like on 1m to 5m charts. The whole thing is generally is generally structured, traded, and done within seconds or minutes. Hear that, seconds or minutes!
All one is doing is putting a profitable exit closer on terms of movement in order to be profitable. Because of the constant probing in the markets this can be a reasonable strategy. IMO. The downside is less reward and a trader must be ready to dump any averaged down position quickly if the probe turns into a reversal.
Averaging down, aka as scaling into a losing position, and or using a martingale technique is done not to avoid a loss (although in effect it does that) but it is used to put probability in ones favor that a profitable exit is forthcoming, i.e. when scalping. I am not arguing for adding and adding and adding more and more and more to avoid a loss. In such a case a trader would be getting out of the probing phenomena of the markets and likely suffer larger losses. I am talking strictly about scalping 1m to 5m charts. That said the same thing can be done on larger time frames (as PA on all TF’s is basically the same) but larger TF’s would require more capitol and greater risks in monetary terms.
The things are above are my opinion I don’t advice anyone to do it. That is up to a trader to make his own mind up. However, I would say watch this back and forth tug and push on 5m and 1m charts if one is inclined to scalp trade. It generally manifests itself on overlapping bars. Observe how often this happens and try see how one could potentially profit from it.
In such a context the probability of a successful trade increases. The down side is less reward. There are three variables. Risk, reward, and probability. If one is adjusted if affects the others when structuring a trade. If I assume more risk by averaging down or using a martingale strategy I increase my probability of getting out in an overall winning trade, although I may lose on some contracts in the trade but win on the other contracts in the trade, however overall it is a winning trade. It is better to win even if the reward is smaller than to lose on a temporary probe against one’s position. Especially if one is a scalper.
I am speaking here in terms of very short-term trading like on 1m to 5m charts. The whole thing is generally is generally structured, traded, and done within seconds or minutes. Hear that, seconds or minutes!
All one is doing is putting a profitable exit closer on terms of movement in order to be profitable. Because of the constant probing in the markets this can be a reasonable strategy. IMO. The downside is less reward and a trader must be ready to dump any averaged down position quickly if the probe turns into a reversal.
Averaging down, aka as scaling into a losing position, and or using a martingale technique is done not to avoid a loss (although in effect it does that) but it is used to put probability in ones favor that a profitable exit is forthcoming, i.e. when scalping. I am not arguing for adding and adding and adding more and more and more to avoid a loss. In such a case a trader would be getting out of the probing phenomena of the markets and likely suffer larger losses. I am talking strictly about scalping 1m to 5m charts. That said the same thing can be done on larger time frames (as PA on all TF’s is basically the same) but larger TF’s would require more capitol and greater risks in monetary terms.
The things are above are my opinion I don’t advice anyone to do it. That is up to a trader to make his own mind up. However, I would say watch this back and forth tug and push on 5m and 1m charts if one is inclined to scalp trade. It generally manifests itself on overlapping bars. Observe how often this happens and try see how one could potentially profit from it.
The downside of scaling into a losing position (Martingale, averaging down, whatever) is that you have to make allowances in advance which will limit the size of your trade relative to your account. You will need the buffer.
Would not a better approach be to take the setups that pass muster with larger size and tighter stops? If the trade starts going slightly sideways, you can scale out without exiting entirely (while still honoring either a hard or soft protective stop). If it resumes in the trade direction, you can usually size it back up. In this way, you'll have bigger size in the trades that perform well from the get-go (always a good thing).
Not willing to be "wrong" doesn't come for free.
That is ok too, however “better” is relative to a traders situation. A trader with less money to play with might want to look at the concept of averaging down in terms of minute by minute probing in the markets.
There again it is not a case of not willing to be wrong but a case of being willing to put more probabilities in my favor while being willing to accept less reward. Of course the fruit of it is not losing if done correctly and one is good at reading the market bar by bar. Along with being good at reading the probing as it unfolds However, it is all connected to the phenomena of probing and not connected to avoiding a loss.
As traders we cannot know which institution will push the market in a direction. At all times bullish pressures and bearish pressures operating in the market. We cannot know which side will ultimately win causing a BO but we can to a degree “see” which side is momentarily in control. Say the bullish side appears to be stronger so I as trader go long 1 contract. But the bearish pressures push back pushing price down a bit. IF OVER ALL (think bars to the left) bullish pressures seems to be in control then this can be an opportunity to add to the temporary losing position so the trader might add a contract or two to even get more probability bringing the profit level exit even closer. Some traders would call this trading noise. If that is what they want to call it that is their business. I don’t believe in noise. Every tick happens for a reason. Price is ultimately going to move to a level where more transactions take place. That IS the purpose of trading and the purpose of the markets.
The institutions are not out to get our SL’s although that will happen as they push and pull. But they are trying to take money from each other. We retail traders get caught in the crossfire between bullish and bearish pressures and so we blame then for running the SL’s. We don’t have enough money to interest them. They are out after each other and sometimes just simply buying or selling hundreds of contracts on their order books.
I haven't YET read the book, but...
Wouldn't an unplanned scaling into a losing position be a form of "forcing"?
Wouldn't an unplanned scaling into a losing position be a form of "forcing"?
Not to mention that, employing this strategy, your position will be smallest when the market goes immediately in your favor (usually the best trades in my opinion), and largest when you eventually accept a loser.
I'm glad I came across his written works before seeing these videos.
LOL My ass is still there and last time I checked! I have my reasons for “going silent” as you called it.