I have had a pretty good run these past few weeks, quite abnormal actually. Typically I have good weeks that compose of some winning days and some losing days. Lately, I have been ending the week with 2-3x the normal week's PnL.
So like I said, abnormal. I think the only way it will become normal to make this much will be if I continue to do well on my "yield arbitrage" (goofy name that makes no sense. It is pretty much the way I swing trade gold and bonds)
So the "new" strategy is new, however, it is on different instruments.
I used to solely trade the ES. Then I had practiced a new idea, and have been trading it live as of late!
I am considering adding CL to my plethora of swing instruments. Not sure yet.
Thanks for the kind words and posting here!
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Last ditch adds... This is something I find very effective and I think once you think about it, it makes practical sense.
Indulge me guys, while I rant for the next 5 paragraphs
So, I am away from the trading computer, so no screenshots to provide visual aid. I will post some examples tonight.
What is a last ditch add? It is when you add X amount of contract(s) near your puke-point (stoploss)
-I am long from 2000
-My puke-point is 1990
-I am willing to have a max of 4 contracts
-I have 2 contracts (core position) bought already at 2000
-Price goes down to 1992
-I add two contracts here.
-My new position is 4 contracts long with an average of 1996
That is the example. So let's elaborate on why I do this.
Can we all agree on one thing: the market can only go 2 ways, up or down. No other way. Fair assumption? I think so.
One more assumption needs to be made: at any price, there is a 50% chance of it going higher and a 50% chance of it going lower. At ANY price. Is this a fair assumption? I think so. I am aware that there may be statistical anomalies that can disprove this assumption, but I believe it is a fair assumption.
So, since market always has a 50% chance to go either way.
Back to the example. When price is at 1992 (two points away from stop loss). I want to add my remaining two lots. Why?
When price is at 1992, it has a 50% chance to go higher. Right? So, I have a 50% chance of a win. If I win, I make tons of money (asymmetrical returns). If I lose, I lose 4 more points.
A 50% chance to make 1000 points, with a 50% chance to lose 4 points.
Why AREN'T you taking that trade?
I hope this makes sense. I will post pictures once I am at the trade desk.
Ask questions, poke holes, and dispute; let's talk!
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A lot of people find it very hard to stick to the controlled puke point. An exponential Martingale/'adding to losers' mentality takes over, tilt kicks in and sense goes out of the window. It can be a great strategy and it can be a dangerous strategy.
Anyway, super trading run you're having, well done.
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and scale out is generally accepted, but perhaps it should be questioned. Adding to a loser after hitting the hopium is not a strategy or a scale in. It seems as though the vast majority of time frame directional traders kill winners little and nurture losers till they are dream crushing monsters.
I would suggest before the incremental "add" asking if this is a trade you would enter here now from flat to initiate. But I don't have any idea about you or how you trade...just thinking out loud.
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I would disagree with that logic. Possibility and probability are two different things. You say that the market has two possible outcomes - up or down. That is true, but the probability of those outcomes are never perfectly balanced. If you add more contracts very close to your stop then the probability of your stop getting touched is still going to be quite high. High enough to make it not worth doing in most cases unless you see a reason to do it. In the same way you can't trade by setting a 10 point target and a one point stop. Is the probability of hitting the 10 point target 50/50? If it is, then trading would be a very easy job. Even if the probability in that example is 10% you still don't break even due to commission costs.
I can see the appeal of getting more contracts "on sale", but there has to be some sort of market impetus to make it worthwhile in the long run. Blindly adding isn't going to work. You are going to rob yourself of a nice profit if the trade works, and you are going to be waiting to add to improve your basis (which may not happen)
If I say to myself: "There are two possibilities today. I will either get hit in the head by a meteorite and die, or I won't. The chances of getting killed by a meteorite today are 50%. I better not go outside." You'd look at me kind of funny right?
In your example you would be better off putting the 4 on at the outset and riding to your target or loss if you have an edge.
Last edited by TheShrike; October 5th, 2016 at 04:22 PM.
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One thing that I would point out, much as @TheShrike said, is that you can't say that the probabilities are 50-50 for an up or down move, just because there are only two possibilities.
If you are in a strong trend, they may be more like 80-20. But really, you don't know until it's over. Just saying it could go either way, so it's equally likely, is not really right.
I don't really want to get very far into this; it has been a very long time since I took the one and only statistics course I ever had, and I didn't really like it anyway. But I'm right about this. You can't assess the weights to give the up or down probability without having a lot of data on similar situations. And in any case, you still won't know until you have the actual outcome. But just, "it could only go one way or the other" does not mean they are equally likely....
(To add to @The Shrike's example of the meteor: jump out of a fifth-story window. There are only two possible outcomes: life or death. But the odds are not the same for both.)
OK, so with that little nit-pick out of the way, I still think the idea, generally, makes sense.
If you scale into a losing position, say a decline, you will be moving your average price lower. If the trade turns out to be correct, and if your stop is not hit, you can do well even on a relatively small bounce, because of the lower basis. But, you do need to be right pretty often. Otherwise, you are just trying the "Martingale" gambling system, which does not typically end well, as @wldman pointed out. (Ref: https://en.wikipedia.org/wiki/Martingale_(betting_system) )
So, I would say that, as in any scaling-in situation, it does have some advantages. Just don't push it too hard, because you can also just lose more. And in any case, do not rely on the (unfortunately) faulty logic that the odds at any time are always 50% in either direction.
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