Views on "adding to a losing trade"?

[PitchBlack]

Quote from marketsurfer:

you are soooo wrong....

"if the trade goes in a loss from the beginning, it is clear that you are a bad trader"

DUDE ! think about what you are saying. it shows you are a bad psychic, not trader. LOL !

surfer

Maybe you're right.
But i know one thing: the trades that i'm stopped out at 2 points represent less than 5% of all my trades.
Why? Luck probably.

So why would i take a trade that goes several points against me, and why would i add to a loser,out of pure misery ?

If your system is taking a losing trade, adding up to the losses and afterwards hoping to make a profit proves you are a lousy trader.

I thought you would have the intelligence to understand that i meant a trade that went wrong several points, i didn't mean that the trade may not go wrong for a limited time within an acceptable range. But i probably misjudged your intelligence.

 

[marketsurfer]

Quote from spike500:

Maybe you're right.
But i know one thing: the trades that i'm stopped out at 2 points represent less than 5% of all my trades.
Why? Luck probably.

.

if you can do it, great.

best,

surfer

 

[Buy1Sell2]

Quote from spike500:

Wrong.

You take a position to make a profit. If the trade goes in a loss from the beginning , it is clear that you are a bad trader. You are not able to foresee the right move in the short term; so how can you be able to foresee the right move in the long term? Because by adding up a losing position you pretend to know that the direction will reverse in your advantage. It is a fact that the difficulty to predict the right direction grows exponentially with time.
Predicting the right direction for the next 5 minutes is far more easier than for the next week. So if you miss already the 5 minutes, how can you than be right on the week?
You cannot, but you tell yourself that everything will be alright at the end.

What I would disagree with here is as follows: if I start , lets say with 1 contract and I buy at 1300 and then then plan to add another one every 10 pts to the downside until I reach 1250. Then at 1225 that is the point where I reach my maximum loss per portfolio--say 2% of total or whatever the individual trader uses. Anything below 1225 then would be adding to a loser in my view because it would be outside the original money management plan.

With regard to the other point about the weekly direction etc., I think technical signals are much stronger on the longer term charts for overall big moves. A person can probably pick a quick direction on the 5 minute, but it is most likely not the way to huge profits. Traders should start with longer position and if desired gradually move to the fast paced short stuff. Too many trader start out with the day trading and fail. Other opinions will vary.

 

[PitchBlack]

Quote from Buy1Sell2:

What I would disagree with here is as follows: if I start , lets say with 1 contract and I buy at 1300 and then then plan to add another one every 10 pts to the downside until I reach 1250. Then at 1225 that is the point where I reach my maximum loss per portfolio--say 2% of total or whatever the individual trader uses. Anything below 1225 then would be adding to a loser in my view because it would be outside the original money management plan.

With regard to the other point about the weekly direction etc., I think technical signals are much stronger on the longer term charts for overall big moves. A person can probably pick a quick direction on the 5 minute, but it is most likely not the way to huge profits. Traders should start with longer position and if desired gradually move to the fast paced short stuff. Too many trader start out with the day trading and fail. Other opinions will vary.

I followed your trades in another thread and posted after a while the following:

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I just watched the short term trades that you posted and came to the following conclusions:

Total results is - 8.5 points (calculated when we were at 1318.5).

The open positions have an open loss of 38.50 points, which means that they are totally responsible for the actual loss and they consumed all the profits from the previous 30 trades.

Adding to losing positions only created even bigger losses, so that was a bad idea.

If you would have placed a stop at -5 points your total actual result would have been +18 points instead of a loss of 8.5 points. A difference of 26.5 points! I did not check if profitable trades went wrong more than 5 points (which would cause a loss of 5 points instead of the actual profit) but i don't think the profitable trade ever went 5 points wrong.

You did much more shorts than longs. Apparently you don't like longs. Lucky for you the trend was short till 4 days ago. So the question is: what will happen in a uptrend? The results of the last 3 days can give you already an idea about what will happen.

This posting is not meant as a critic, just trying to explain what i see and how i see it.
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I think i clearly proved that adding to a losing position is not a good thing to do. Placing a stop would have been much more profitable and not adding to losers would have increase again the profit.

 

[Buy1Sell2]

Point taken if I was undercapitalized and had closed the trades out. They are still open (the positional trades are--short 5 units long term). The thing though that is missing from this discussion is that 38 points is extremely small. A trader must relate losses to their portfolio as much as possible. You would be extremely correct if I used a tremendous amount of capital in margin and then added or just let the losses run. For a small cap trader,yes they must must must be right or get out quickly. Bigger caps add positions as part of a bigger plan in order to reap bigger profits for less activity. Your points are well taken and should be heeded by some who are reading here. Thanks for the insight!

 

[fhl]

Question to the pro-scaling in at lower level folks. It's easy to scale when the stock is coming in to a place down around it's retracement(support). What about when the stock won't come in(moves sideways), you take a position, then it starts to come in. Do you then add to the position at the retracement level that you think will be support? As a scaler, this is the question that has always vexed me.

 

[Buy1Sell2]

Quote from fhl:

Question to the pro-scaling in at lower level folks. It's easy to scale when the stock is coming in to a place down around it's retracement(support). What about when the stock won't come in(moves sideways), you take a position, then it starts to come in. Do you then add to the position at the retracement level that you think will be support? As a scaler, this is the question that has always vexed me.

I am going to have to relate this to futures. I trade no stocks. If I understand the question though, I think yes you do. I would start small and then buy lower at the place you thought it would retrace to. Now if the market is screaming buy, then I think you can step on the gas right then. I would tell you--I am generally early in my trading for position and this is why I start small and add. Yes, it is many times anticipatory.

 

[Grob109]

Quote from fhl:

Question to the pro-scaling in at lower level folks. It's easy to scale when the stock is coming in to a place down around it's retracement(support). What about when the stock won't come in(moves sideways), you take a position, then it starts to come in. Do you then add to the position at the retracement level that you think will be support? As a scaler, this is the question that has always vexed me.

To unvex, consider looking at the situation near support (Resistance) as a lateral testing zone.

Now, you have that in view.

There is a common error being made by most of the posters in this thread.

Focus on that common error (it is one of ignorance, primarily).

Ask yourself what is necessary to be successful in the test (to take it to new ground)?

For price to go places, as an extension of the existing market climate, takes more of what is driving the present condition. For the market to tend towards failure all it takes is maintaining the status quo or less.

This is a discussion of whether a person can succeed if he does the opposite of what the market is doing. The discussion is not about price, primarily. It is about the sequence of how the amount of what the trader has is being deployed.

Then, the question of what is necessary for success or, on the other hand, not there (and so failure occurs) is not found in the consideration of price or the person's risk tolerance (the B chart where the drawing fails is an illustration of a paradox (A fails as well for other reasons)).

The poser is talking about participation in a sequence where he is astounding compared to all other traders of that duration of interest. Obviously, if he acts in this extreme, he is outside of the box and there is no way his strategies can be deemed functional.

Your vexation is a direct result of moving forward in objective reasoning.

You must add to your considerations: "what is necessary" and in its absence "what are consequences".

Because the poser is an incomplete trader (in terms of knowledge, skills and experience) he fails to observe what the market is telling him.

Volume is what is represented by scaling and scaling is a risk management issue only and purely because of the amount (volume) of resourses applied.

In trading, there is an element always present that is like a compass is to the sailor. It is the volume of participation of "smart money". All the active traders do the kinds of stuff you are reading about page after page. On the other hand the alternative is to observe how the portion of traders who are "smart" conduct themselves. It is not a collective parallel scaling observation. It is an observation that is all about doing as smart money does. Their degree of doing is measured by their collective volume as a separate quantity from what other traders do.

The poser has to provide a complete set of metrics instead of what was provided to initiate the discussion. You comment on S being where what vexes you does provide the additional metrics and a general case that is very important. It is not OT, either.

To make money, the issues devolve around what is required to change price. Looking at price only is never going to be where this set of issues may be addressed. Never. Market action (readers think price) is a consequence of the market forces that come from volume. Actual volume is the measure of what drives the moment. Intent vis a vis volume is measured by the DOM.

Smart money trades, meaning smart money is positioned in the market; scaling is a waffling operation that is not smart. A 300% change in position (the poser's potential strategy) is not something traders who are smart ever have on the table.

Check out the relative times of S/R testing and durations of reversion moves.

 

[Mike805]

Quote from Grob109:

Smart money trades, meaning smart money is positioned in the market; scaling is a waffling operation that is not smart. A 300% change in position (the poser's potential strategy) is not something traders who are smart ever have on the table.

If you are saying that scaling is "waffling" and not smart then I'm calling BS.

Scaling in can be used appropriately in both losing and winning trades. Adding to losers is not necessarily incorrect since elasticity allows multiple entries at or around the initial "incorrect" entry. By the way, there is no such thing as an "incorrect entry", there are risky and not so risky entries - position sizing allows a qualitative acceptance of this risk given the trades possible expectancy. In general, I cannot stress this point enough - THE MARKET DOES NOT CARE WHERE YOU ENTER, nor does it care with how much size you enter, the market will do what it wants to do regardless. It is up to the trader to decide what position allows for the higher expectancy with minimal monetary risk.

Suppose the market waffles in a range all day, I will concede that statistically, adding to a loser does have the occasional oversized loss, however, the initial entries and monetary stop amount can be changed to limit each potential trades risk based on known statistical oscillations. I do not recommend this to beginners since you should have a strict loss cutting discipline already developed.

This is a simple matter of bet asymmetry and random outcome. In an elastic market, S/R levels are broken tested all the time. Using these levels as reference points for your "incorrect or correct" entry doesn't mean a thing. In fact, because most people position themselves around such "incorrect" entries, the expectancy is never quite the same. This is just a convoluted way of saying you never know what is going to happen until it happens, BUT you can trade in manner that strictly limits, on an individual position basis, monetary loss.

 

[Pabst]

Nice thoughts, because I agree with them.

You're absolutely right though. A trader who fades healthy, mature moves will more often be able to scale at "forgiving" levels than will a breakout trader. My DEATH trades are when I sell a new swing low and then continue to scale higher. Often the false breakout that I sold remains a significant low. (opening range breakout trades are BAD candidates for adding to a loser)

Also I think no matter what your timeframe is, one is better served by adding in the direction of the prevailing trend. In other words, the past three years the indices have been much kinder to guys who were loaded up with formally bad longs than those who were stuck short.

Quote from stock777:

Speaking strictly theoretically.

If you have a method. or technique, that picks entries at the top or bottom of a range, anticipating a reversal, then adding to 'losers' is NOT a bad idea at all.

Since there is noise in the market, NO ONE, can predict an absolute price from which a reversal will occur (ok, the big money can predict it, because THEY CAUSE IT) ......... do yourself a favor ,read that 20 or 30 times before moving on.

So, you buy 1 unit at the signal . Turns out the contract ticks down a time or two. Well, the signal is stronger now, as the entry is BETTER, so you buy another. This is the reason for scaling in.

Now if the signal is WRONG you will lose money. But I thought we said you knew what you were doing. So in the long run, those ADDS will be more profitable then the first entry.

This is all very theoretical of course ;-))