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Increasing size on a loosing position

  • #21
  • Jul 20, 2006 1:22pm Jul 20, 2006 1:22pm
I tend to try to get a better position in after the first trade.
In my system I need three trades in when my indicator tells me too. If the market is waving then I will try to see if I can get in at below my intial start. Typically I get my first two trades in around the same area 1-5 pips, then the third I'll wait a little while longer to see if I can get in a little lower. If it moves in my favor and the market has broken resistance or moving strong I will get the third in asap.

I'm still in a testing stage of my system still. I need to see how it reacts in certain situations so in the future I can make a better call that may help my profits or reduce my losses.
  • #22
  • Jul 20, 2006 4:54pm Jul 20, 2006 4:54pm
now is allmost close to my short entry price..probably I could close even, or also in profit.

I think a good margin is required to work well in trading..
  • #23
  • Jul 20, 2006 5:51pm Jul 20, 2006 5:51pm
Trucco, I am not so sure it was the trades that were bad. I think it was your position size that was out of shall we say control... If you cut back to where you are only risking about 2 -4 % on anindividual trade and no more than 10% of your trading account on all open trades, You would not see margin calls...

A Margin call is not a good stop place... You have a good feel for the market. I think you just risk too much..

Scott


Quoting trucco
now is allmost close to my short entry price..probably I could close even, or also in profit.

I think a good margin is required to work well in trading..
  • #24
  • Jul 20, 2006 8:14pm Jul 20, 2006 8:14pm
Quoting twoblink
Here's some free advice. You will die a horrible death if you increase a losing position.

Averaging down is the WORST strategy.

Type "martingale" into google.
A martingale betting strategy is dangerous because risk is increased exponentially while hoping that bad luck will turn to good. However, in trading a financial market, re-entry at a better price makes sense on top of good reasons (your choice of technical or fundamental) to forecast price direction. I believe even Vegas allows re-entry at the next fib line until it looks like one is going against strong trend. Finally, total position size / risk should be within the specs of your money management strategy.
IMHO.
  • #25
  • Jul 20, 2006 10:18pm Jul 20, 2006 10:18pm
If you did your homework and placed your SL right, the answer should be never. If the price moves against you and takes your stop out, there are two scenarios: 1. you didn't placed your stop right. 2. you placed your stop right but the market swallowed it anyways.
In case of 2, there must be a good reason for it. After all we're trading probabilities not a 'sure thing'. If 2 happens I usually accept it and may sell stop below (assuming I'm long). After all market is always right.
Many year ago I've learnt the hard way in stock trading:
cut your losers short, let the winners run. Mind you, unlike currencies, I never shorted stocks.
happy trading.




Quoting dof
How many times you have entered a trade and the price went directly in your favor? How many times did the price move against your trade for 10-20-30 pips and then moving in your direction?
Except for news, the price for me usually goes first in the wrong direction. Does this mean that my strategy has some problems or that's just the way it is?
How many of you add to your trade when the price moves against you but the strategy is still valid? What rules do you use?
  • #26
  • Jul 20, 2006 10:47pm Jul 20, 2006 10:47pm
Quoting raczekfx
If you did your homework and placed your SL right, the answer should be never. If the price moves against you and takes your stop out, there are two scenarios: 1. you didn't placed your stop right. 2. you placed your stop right but the market swallowed it anyways.
In case of 2, there must be a good reason for it. After all we're trading probabilities not a 'sure thing'. If 2 happens I usually accept it and may sell stop below (assuming I'm long). After all market is always right.
Many year ago I've learnt the hard way in stock trading:
cut your losers short, let the winners run. Mind you, unlike currencies, I never shorted stocks.
happy trading.
I think you understood wrong. If the SL is hit, that's it. I'm just saying that the price is moving against you but your strategy is still valid( that means the SL is not hit).
Let's say you set your SL 30 pips away and you are -20 pips. Do you add to your position?
Try hard, think fast, die young
  • #27
  • Jul 20, 2006 11:28pm Jul 20, 2006 11:28pm
Maybe I did, however how can you be sure your strategy is right if the price moves against you? From -20 to -30, there is only 10pips, and if you're trading cable or gbp/jpy, it can be only few seconds before you're out, even on 1 min chart. Again, why would you add to a loosing position? Unless you have billions of $$$ like Warren and keep your SL 500 pips away, this simply makes no sense to me, dof. It's gambling, not trading. I would add to a winning position though.
happy trading..

Quoting dof
I think you understood wrong. If the SL is hit, that's it. I'm just saying that the price is moving against you but your strategy is still valid( that means the SL is not hit).
Let's say you set your SL 30 pips away and you are -20 pips. Do you add to your position?
  • #28
  • Jul 20, 2006 11:33pm Jul 20, 2006 11:33pm
Quoting dof
I think you understood wrong. If the SL is hit, that's it. I'm just saying that the price is moving against you but your strategy is still valid( that means the SL is not hit).
Let's say you set your SL 30 pips away and you are -20 pips. Do you add to your position?
i think it is acceptable if it is with in your MM rules. Say you could loose $50 on a trade according to your MM. If you went in with 1 mini and had a stop at 50 then your dont have any room, but if you went in with 0.5 mini and a stop at 50 then the max you would loose is $25, so you could add to it abit.

if you start you initial position with less then your full MM lotage you will be ok, course you wont make as much either, but if you are scalping you might be alright
  • #29
  • Jul 20, 2006 11:51pm Jul 20, 2006 11:51pm
Fading is just another term for this exact strategy you are talking about, I know the first reaction is always "OH MY GOD DONT DO IT", as it is repeated in mainstream textbook advice everywhere, but here is why I do it, Ill compare the two scenarious on a phantom pair, with two phantom traders, assuming a full account (1 pip = $10) with a scenario of price moving against them:

__________________________________________________________

Trader 1: Standard, text book method:

Open

 

  1. Open 1 full position short at 1.000
  2. Stop loss is placed at 1.100 (100 pip stop loss)
  3. Risk is $1000 on this trade on opening.

Price moves against the trader

 

  1. Risk remains the same as the full lot is open, $1000

____________________________________________________________

Trader 2: Fading the market

Open

  1. Open 0.5 of a position at 1.000
  2. Stop loss at 1.100 (100 pip stop loss)
  3. Trade starts with $500 risk.

Price moves against the trader

Trade 2 is always wanting to open a full lot so:

  1. Open 0.5 of a position at 1.050
  2. Stop loss still at 1.100 (50 pip stop loss)
  3. Trade now has a risk of $500 + $250 = $750

___________________________________________________________

So now both traders have a full lot open, identical stop losses, and targets, yet trader 2 has reduced his/her exposure by $250 by scaling in when price moved against the original position and increased his potential profits by entering half of his position at a better price.

That is an extremely simple example, I scale into a full position in 0.2 increments at times so this scenario is repeated a few times. If the trade doesn't work out and hits your stop loss, then the loss is smaller than taking a full position at market, if it does turn and head in your direction, the you have slightly increased your profit by entering half of your position at a better price.

It is countered of course of a slightly reduced profit if it never goes against you as you give up some pips while scaling into the winning position, or only running with half a position, but the risk minimisation is worth it and there are many more times when price moves against me slightly first than it heading off in my direction immediately.

It is fine to say that you should do your "homework" and not need to do something like this by entering at a better price, but that really is a silly thing to say as there is not a trader on this planet that has every trade move in their direction immediately, drawdown is a fact of trading, the markets don't care how much homework you have done at times.

I can't emphasise enough though, that you should know exactly the lot size you want before starting, scaling in so that you end up holding a position greater than originally intended is a danger of this method.

Hope some of this made sense.

You can quit and they won't care, but you will always know.
  • #30
  • Jul 20, 2006 11:58pm Jul 20, 2006 11:58pm
I'm still a beginner, so its not qualified advice. Boris Schlossberg's book "Technical Analysis of the Currency Market" (not meant to be an endorsement by a pre 50-poster) describes various methods of positioning a trade, including what I think Dof is describing, whereby you add to a position as it moves towards your stop. The reasoning is that he says trading is the art of forecasting direction and timing, of which timing is the hardest to pick. So if you believe you've got the direction correct, and you can place a stop at a level that will be triggered only if your direction decision is wrong, you can scale in until your stop is triggered. He describes various ways of doing this and the pros and cons. You can scale in until all your %risk allocation (eg: 2%) is used, or alternatively scale out whereby you initially place all your 2% at risk, then take out set percentages of your position (eg: 10 or 25%) at fixed intervals as price moves towards your stop. I plan on working on the idea eluded to above with the pinbar example, whereby a partial (say a third of your risk is initally entered), another third is entered at a point closer to the stop, then another third at another position closer to the stop, OR if price moves in my favour, add to the position also.
Cheers
  • #31
  • Jul 21, 2006 12:41am Jul 21, 2006 12:41am
Akuma replied as I was (fellow Sydneysider doing the same thing!). As Akuma's calculations reveal, the scale in approach effectively reduces the $ risk. The scale out approach I describe above also has the same effect, because all of your postion is initially purchased, but not all of it is left to hit your stop. I suppose there would be times when you could take both approaches, depending on your level of confidence with your timing (if confident, place all the position initially then scale out; if unsure of timing, scale in).
  • #32
  • Jul 21, 2006 1:24am Jul 21, 2006 1:24am
  •  Trader#0000
  • | Status: Unregistered Trader
Quoting Akuma99
Fading is just another term for this exact strategy you are talking about, I know the first reaction is always "OH MY GOD DONT DO IT", as it is repeated in mainstream textbook advice everywhere, but here is why I do it..........Hope some of this made sense.
Thanks for the good example Akuma, I think I am going to try to include this into my strategy over the next few weeks.
  • #33
  • Jul 21, 2006 1:44am Jul 21, 2006 1:44am
I often add a new lot on a winning position,but it's kinda tricky move.......
  • #34
  • Jul 21, 2006 2:35am Jul 21, 2006 2:35am
Quoting smjones
Trucco, I am not so sure it was the trades that were bad. I think it was your position size that was out of shall we say control... If you cut back to where you are only risking about 2 -4 % on anindividual trade and no more than 10% of your trading account on all open trades, You would not see margin calls...

A Margin call is not a good stop place... You have a good feel for the market. I think you just risk too much..

Scott
Hi Scott,

Thanks. Its a pity because I could have closed even at 1,8470.

In general , Im not happy about my last trade, I didnt think enough before entering the trades, and it was just too much. Maybe i was euphoric or drunk.

I think you are absolutly right about the fact that is a mistake to play too much in one trade, indeed I usually dont play so much (usually max 50k divided in 2 or 3 entries, according to fading tactic), but I also don't feel to play too little, because otherwise i dont see the sense to loose all this time and energies to earn few hundreds $ a month.

Unfortunatly I guess we all have a quite little account, and unless you have a 50.000 account, is hard to make some money that worth the time and energies you loose by playing 3-5% each trade.


I moved back 3k on the trade account
  • #35
  • Jul 21, 2006 2:37am Jul 21, 2006 2:37am
Quoting Akuma99
Fading is just another term for this exact strategy you are talking about, I know the first reaction is always "OH MY GOD DONT DO IT", as it is repeated in mainstream textbook advice everywhere, but here is why I do it, Ill compare the two scenarious on a phantom pair, with two phantom traders, assuming a full account (1 pip = $10) with a scenario of price moving against them:

__________________________________________________________

Trader 1: Standard, text book method:

Open

 

  1. Open 1 full position short at 1.000
  2. Stop loss is placed at 1.100 (100 pip stop loss)
  3. Risk is $1000 on this trade on opening.

Price moves against the trader

 

  1. Risk remains the same as the full lot is open, $1000

____________________________________________________________

Trader 2: Fading the market

Open

  1. Open 0.5 of a position at 1.000
  2. Stop loss at 1.100 (100 pip stop loss)
  3. Trade starts with $500 risk.

Price moves against the trader

Trade 2 is always wanting to open a full lot so:

  1. Open 0.5 of a position at 1.050
  2. Stop loss still at 1.100 (50 pip stop loss)
  3. Trade now has a risk of $500 + $250 = $750

___________________________________________________________

So now both traders have a full lot open, identical stop losses, and targets, yet trader 2 has reduced his/her exposure by $250 by scaling in when price moved against the original position and increased his potential profits by entering half of his position at a better price.

That is an extremely simple example, I scale into a full position in 0.2 increments at times so this scenario is repeated a few times. If the trade doesn't work out and hits your stop loss, then the loss is smaller than taking a full position at market, if it does turn and head in your direction, the you have slightly increased your profit by entering half of your position at a better price.

It is countered of course of a slightly reduced profit if it never goes against you as you give up some pips while scaling into the winning position, or only running with half a position, but the risk minimisation is worth it and there are many more times when price moves against me slightly first than it heading off in my direction immediately.

It is fine to say that you should do your "homework" and not need to do something like this by entering at a better price, but that really is a silly thing to say as there is not a trader on this planet that has every trade move in their direction immediately, drawdown is a fact of trading, the markets don't care how much homework you have done at times.

I can't emphasise enough though, that you should know exactly the lot size you want before starting, scaling in so that you end up holding a position greater than originally intended is a danger of this method.

Hope some of this made sense.


Thanks Akuma99.


We do the same then
  • #36
  • Jul 21, 2006 4:09am Jul 21, 2006 4:09am
Hi,

I think there is a big misunderstanding between Averaging down and Martingale strategy. Martingale system is doubling the bet size after a loss in the hope that one win can bring you into profit. Typically it is one of the worst strategies to employ in the Markets and fastest way to the poorhouse.

Averaging down is popularly used by Mutual funds and works out very well for them as they keep dollar cost averaging all the time. Commodity trading are also good examples where the price of commodities can theoritically never go down to zero amd hence traders might average down to historic supports and resistence which tend to hold on for years.

Anyway, as far as forex is concerned , it is highly unlikely that you get into a position and it moved directly in your favour. If you are confident about a direction, the best way to get more out of the postion than directly betting all at one go.

If you plan to risk 2% per trade, better to risk 1% first and then as the market moves into a loss, take the second position. So over all you get more from your trade. Its well explained by Akuma.

Cheers
  • #37
  • Jul 21, 2006 4:24am Jul 21, 2006 4:24am
Quoting dof
Do you increase your size? Or you just wait.
Only if I'm very sure of my direction, I add to my position.
  • #38
  • Jul 21, 2006 4:50am Jul 21, 2006 4:50am
http://www.forexfactory.com/forexfor...3&postcount=17

I present obviously a very different view on this.. I also provide "sound math" to back up what I am saying.

Take it or leave it.

I don't think Akuma presents a fair view of this; (and I don't mean that as in I disagree, I disagree so far as making a clear distinction) what he does is not adding to a losing position by the traditional sense; fading something vs martingaling something is not the same.

And no, that's not just symantics..

I highly recommend entering at 50% the lot side you want, and inch-worming in as you are proven right.
google:
  • #39
  • Jul 21, 2006 6:51am Jul 21, 2006 6:51am
Hi, twoblink,

For all the rhetorics on moneymangement you seem to make a comman mistake of equating the theory of stock markets to Forex markets. After reading all your explanations its quite evident that you are the one who doesnt get it.
Akuma did quite a good job of explanation and I wont go into the depths of explaining it again. However I will give you a couple of reasons why you are dead wrong with the math and if you do take time to read and understand it, maybe you will see the other side too.

1) The explanation you have given is quite correct because you cant buy anything under 1 share of the stock, However for forex ,suppose my initial lots to trade is 1Lot, I can break them into 0.5lots for first entry and 0.5 lots on the second trade. Now you do the math again please and tell me I am wrong.
Initial price of entry for example 1.8500 gbp 0.5lots, SL = 1.8400
2nd entry 1.8450 long , SL = 1.8400
Average price is 1.8475
Risk = 75pips against 100pips if I had entered at 1.8500 with 1 lot.
This is just theoritically but the math is there for you to see.

2) All currencies are volatile and we wont see any currency lose all its value in the neartime future unless we have a catastrophy.
Stocks on the other hand are subject to company fundamentals and can go bankrupt anytime. Case in point is Enron.

3) You think averaging down is foolish, mutual funds do it all the time.

Its not what you do but how you do it that matters.
  • #40
  • Jul 21, 2006 10:11am Jul 21, 2006 10:11am
Quoting radicalmoses
Hi, twoblink,

For all the rhetorics on moneymangement you seem to make a comman mistake of equating the theory of stock markets to Forex markets. After reading all your explanations its quite evident that you are the one who doesnt get it.
Akuma did quite a good job of explanation and I wont go into the depths of explaining it again. However I will give you a couple of reasons why you are dead wrong with the math and if you do take time to read and understand it, maybe you will see the other side too.

1) The explanation you have given is quite correct because you cant buy anything under 1 share of the stock, However for forex ,suppose my initial lots to trade is 1Lot, I can break them into 0.5lots for first entry and 0.5 lots on the second trade. Now you do the math again please and tell me I am wrong.
Initial price of entry for example 1.8500 gbp 0.5lots, SL = 1.8400
2nd entry 1.8450 long , SL = 1.8400
Average price is 1.8475
Risk = 75pips against 100pips if I had entered at 1.8500 with 1 lot.
This is just theoritically but the math is there for you to see.

2) All currencies are volatile and we wont see any currency lose all its value in the neartime future unless we have a catastrophy.
Stocks on the other hand are subject to company fundamentals and can go bankrupt anytime. Case in point is Enron.

3) You think averaging down is foolish, mutual funds do it all the time.

Its not what you do but how you do it that matters.
And it's not that you risk only 75 pips, if your strategy is a good one, most of the time the price will return in your favor and you will make more. So less risk, more gain. Makes sense to me.
Try hard, think fast, die young
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