Views on "adding to a losing trade"?

[Grob109]

Quote from Mike805:

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.

nice post.

The "incorrect" entry issue is so real for most people.

My focus is on being in the market most of the time and I definitely am trying to front run smart money.

Risk minimization is very important as you say; we both want to keep on the right side of the market when we are in.

Keeping positioned is my main effort.

 

[PitchBlack]

Quote from Mike805:

By the way, there is no such thing as an "incorrect entry", there are risky and not so risky entries

So shorting Google in 2004 at 100$ is risky instead of incorrect?

 

[Buy1Sell2]

Quote from Grob109:

nice post.

The "incorrect" entry issue is so real for most people.

My focus is on being in the market most of the time and I definitely am trying to front run smart money.

Risk minimization is very important as you say; we both want to keep on the right side of the market when we are in.

Keeping positioned is my main effort.

so your position now is long or short in terms of indices

 

[fhl]

quote from grob109

"My focus is on being in the market most of the time and I definitely am trying to front run smart money."



Flipping from long to short in uptrends and short to long in downtrends doesn't seem like the smartest way to trade to me either.

 

[40Deuce]

Quote from 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.

those ARE my DEATH trades as well.
markets overall have been quite favorable to 'faders' b/c lack of institutional flows pushing breakouts to new levels

nice post, Pabst

 

[Cheese]

Quote from JangoFolly:
..
Let's say there's a major break in the market (up or down), and then within the next couple of periods (however a period is defined for your trading style) there's a retracement and you decide you want to open a position in anticipation of the market resuming in the direction of the break. ..

The are 2 outcomes: a BO and you are correct or a FBO and you are incorrect.

What is a FBO? Is it still a big enough retracement to turn around in with a wash allowing you to reset your position in line with the original move as it resumes?

The market (eg YM) is just a series of linked intraday gyrations of varying elasticity. So this means you have to understand and work the whole day as a cosy continuum which is where repeated observation and practice assists in building the accuracy of your entries.

 

[Mike805]

Quote from spike500:

So shorting Google in 2004 at 100$ is risky instead of incorrect?

In a word, yes.

Look at it this way : incorrect would've meant taking that short trade without a fixed stop loss. Even more incorrect would've been letting that trade take you for x points into the negative and not knowing before-hand were you were going to admit to being "incorrect". Thats called gambling and has nothing to do with risky entries.

My definition of risk is in not in the decision to go long or short, rather it's in the answer to the question: "How much will this trade cost me when I am incorrect?" Pay attention to my wording here, in all cases I believe I am wrong from the moment I enter and always use a fixed stop loss assuming such. I don't make any assumptions about being "right"...

Out of curiosity, how many times a day do you think you are correct in an entry? Do you believe this helps or hurts your objectivity? Personally for me it is the latter. Whenever I think I am right then it becomes even more difficult to divorce my ego from the position when I am proven wrong.

So, in general, I guess all my entries are incorrect, some are just less risky than others

Mike

 

[faure]

I look at it this way. Say I enter long at X, what are the two most extreme scenarios? Either price drops like a rock all the way to my stop and I'm adding to my long as it drops eventually getting stopped out, hence I'm wrong when I'm at my biggest. Or, I'm right and the market doesn't go low enough for any more scale buy orders to be executed and takes off like a rocket, leaving me right but at my smallest.

Doesn't seem logical does it?

When you scale in as it goes against you the need to be right on the trade is more crucial than when you put that first order in. Think about it.

 

[coolweb]

Its simple.

You add to losers when its your strategy

Like sacrificing your pawns if you can kill some bishops.


If you sacrifice your pawns just because your other pawns got killed and you don't know what the hell you are doing then you will continue losing.

 

[kiwi_trader]

Quote from faure:

I look at it this way. Say I enter long at X, what are the two most extreme scenarios? Either price drops like a rock all the way to my stop and I'm adding to my long as it drops eventually getting stopped out, hence I'm wrong when I'm at my biggest. Or, I'm right and the market doesn't go low enough for any more scale buy orders to be executed and takes off like a rocket, leaving me right but at my smallest.

Doesn't seem logical does it?

When you scale in as it goes against you the need to be right on the trade is more crucial than when you put that first order in. Think about it.

The problem is that this thinking is fuzzy thinking .... "seem logical."

If you actually want to know the answer to the question ... should I scale in from this entry point then you have to do the math for your specific situation.

Treat each entry within the scaling in as seperate. Evaluate win ratio, win percentage, expectancy, frequency of opportunity all as part of your trade allocation. Only when you do that will you know if the strategy works for you in the context of the market you trade and the type of entries and exits you are using.

I could give you an example where it works for me but you probably don't trade the HSI on the timeframe I use so you need to do the math for your specific strategy. Also in a thin market scaling in may be necessary to avoid poor fills as well.

If its part of your tested, evaluated, practiced plan then scaling in / buy as it goes down will be a good thing. If you do it to make yourself feel good when things are going wrong ... well ... thanks for the money.