it's also very nice to have different opinions without yelling and cussing. really appreciate that
now we can add some more examples with the scale up method. you buy 1 at 2020, 1 at 2025 and 1 at 2030. unfortunately the market doesn't reach your target, but instead turns around and stops you out at 2005. that's a loss of 60 points. which is worse than the 3 lot aiao trader with a loss of 45 points!
but don't worry, I do realize that reality looks different. just trying to show that you can make a case for every scenario.
statistically speaking we could analyze every single add as a separate trade. if for the majority of trades you get to add 1 at 2015 and 1 at 2010 (just using the above simple example), then it would make sense to buy 3 at 2010 instead of scaling in. the same if for the majority of trades you only get to add 1 at 2015, then it would make sense to buy 3 at 2015. and of course if you don't get to add at all for the majority, then you should buy 3 at 2020.
now in reality you should do what you think is best. if your entries are pretty good and you're more of a scalper, then aiao might be the better way.
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I think the upshot of all this discussion is that if you can get the trade direction right, you will make some money. If you don't, you won't. (Gasp! )
Personally, I think the entire thing about all-in-all-out vs. scaling is immaterial unless you get the trade right first. Also, after you get the trade right, it's not really enormously material either, in the overall scheme of things. It's a preference about how you want to manage your risk and exposure, and it may make a difference, certainly, but not as much as just whether you are right or not.
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Disagree with you somewhat here - On any individual trade, I need to get trade direction right to make money, but there is no guarantee that I will make money even if I do. Usually a too close stop will get taken out and the market can then continue. Other scenario is that a market runs in your favour and then reverses - you were only temporarily right...in both cases direction was right at some point in time and the trade still lost money.
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I have not had a chance to read the past couple of pages of responses but the last I read was your reply regarding scaling and why you see the importance of using 1R as a measure. I didn't reply immediately when I read this yesterday as I wanted to think about what you were saying and here is the thought that struck me...
We see the markets differently. I see the markets as a price discovery mechanism and from this perspective, I understand where you don't see what I see. Your comments about scaling and 1R show that you are not looking at the broader operation at hand- let me attempt to explain this statement:
Scaling- We are trading within a single days timeframe. We have no idea what the market is going to do. A day-traders primary responsibility is to assess the current condition and make a decision as to what type of day we are going to have (range, trend, reversal, etc.) and repeat this all day long. So why would one scale? Because we are not sure what the day will ultimately end up looking like and it affords one the opportunity to play two (or more) ideas at the same time.
Example- Its 10est, the markets been open for an hour and has traded above the open in a spike fashion and smacked into a naked POC from two days ago- You got long off the open with 3 contracts. Will the range continue to expand or will the market reverse and continue its downtrend? Nobody knows- but if you scale, you can lock in profits on your first idea and keep your options open to see if its a big reversal day that will attract volume and run into the close with a runner and you don't have to spend your day trying to find another entry which could potentially blow up in your face and rip the profits you already made out of your hands. I think that's pretty clear so I will say no more unless you have questions.
1R- Again- we are trading within a single days timeframe. I have to ask you some questions in order to get my point across here but I'm not trying to be illusive with my response. Keeping with the days timeframe:
- Are markets static or dynamic?
- Are all price "locations" within the day equal?
If you agree that markets are dynamic and not all trade locations are equal, how can 1R make any sense? In a static world, yes, but in the real world there are other factors. Not every trade comes with the same set of variables as the book authors want us to believe.
Example- Its 11est and the market has spiked up off the open for the first hour and is slowly grinding higher with relative volume near +35% for the day. It has not traded below +1SD all morning and is currently pulled back 20t to +1SD. This is a trend up day- taking a trade at 1SD is low risk as the market should continue up but do you just blindly take it? Hell no- I didn't tell you how far the market has already run- If we were 60% of the Avg Daily Range I say take it as fast as you can but if we've already moved 180% of the ADR, I don't feel there is enough room left to get on board today... Now, lets say we are at 180% of ADR- does this mean a reversal is coming? Probably not but maybe so, who knows- would a countertrend short make sense- Hell No!!!-- Its a trend up day. I use this example to show that not all trades are created equal and assigning a static risk/reward scenario cannot make sense.
OK- you ask for help regarding your trades- basically you've ask to look at your trades and tell you the good and bad. Taking your Friday trade- Your execution was good as you sold what you perceived to be overhead resistance and you bailed when the trade went against you- I get that! Why did that trade fail? You failed to focus on what the market was trying to do- it was trying to see if price could be accepted higher on a counter trend day. Why was it so choppy? Because it was a counter trend day- buying was being met with late sellers finding value in the retracement. Who was winning- Buyers were.. How could one know this? Price broke out of the OR and sustained trade above- It took out the ONH and tested value (VWAP) 4 times- each time it returned to value, buyers were standing there gobbling it up- eventually enough sellers gave up selling for the day and price was able to move past the resistance as expected since buyers were not in any way, shape, or form allowing it to go lower so why not let price discover higher prices to see what happens up there.
One last thing- sellers were finding value all day at the HOD- market was bracketing between VWAP and HOD- you took and entry against trend in the middle of the bracket.. If looking for a reversal, the logical trade location was at the top of the resistance band or just above it(if rally attempt failed) as it afforded a "lower risk" entry with the crowd of sellers standing behind you for back up.
Last edited by Inletcap; September 6th, 2016 at 10:04 AM.
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That whole post is yet another fantastic explanation of the way you use context - and there's the rub - you know that by and large you are going to get better than average value trade locations (because you're damn good at it.) I think @Tap In's 1R metric is simply measuring whether he's getting better at it as well, and as such does have merit for the rest of us to bear in mind.
The reality gap is that your read of context is now pretty much automatic/subconscious in action, the rest of us have a fair way to go, regardless of the methods we use to do it.
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Well, like a kid with a new toy, I enthusiastically came into the day eager with possibilities. Naturally, it wasn't the right day to do that. Four straight losses in a row and now I am done for the day because of the daily loss limit.
I don't even want to post the trades because they were taken with lots of voices in my head about "scaling", and "trading directionally", and "giving the trade room to work", and not "moving to BE". They show a trader a little too eager to "get on board" the prevailing trend. Don't get me wrong this is all great advice, but at the end of the day, I need to incorporate these ideas at the pace I can handle.
Not all the trades were illogical. Most were to the short side, and on pull backs to areas of resistance that I thought could hold. I gave them plenty of room to work, even holding through some unrealized gains that I normally wouldn't hold through. In the end, the market was no longer interested in going down. The one long trade was quickly stopped out a 20 tick loss. That was probably the worst trade as it went against my morning blueprint, but the way the market came off the bottom it looked like it was going up for a while.
I am bummed but not gutted. I need to take a step back tomorrow and regroup and really decide what it is I am trying to do.
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