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Why are you reverse position sizing? You're putting yourself at a statistical disadvantage if you aren't prone to having high winning pcts.
Page 265 of Tharp's 1st ed "Trade Your Way To Financial Freedom" describes it best:
"WHAT TO AVOID"
"There is one kind of exit that is designed to get rid of losses, but it totally goes against the golden rule of trading of cut your losses short and let your profits run. Instead, it produces large losses and small profits. This type of exit is one in which you enter the market with multiple contracts and scale out with various exits...Short-term traders use this type of trading strategy frequently. On a gut level, this sort of trading makes sense because you seem to be "insuring" your profits. But if you step back from this sort of exit and really study it, you'll see how dangerous this type of trading is."
"What you are actually doing with this sort of exit is practicing reverse position sizing. Your are making sure that you will have multiple positions when you take your largest losses...You are also making sure that you only have a minimal-sized position when you make your largest gains..."
You get the idea. Basically, this type of entry / exit forces you to have higher average winning pcts to make up for the lower avg. gains (than if you went all-in / all-out) from scaling out.
Fantastic man. No question (for myself) that it comes down to this. As soon as I can get past myself, the trading is pretty easy... still learning how to get this aspect dialed in. I always try to find trades where there really aren't any to be had... forcing it. Once I pull back a bit and gain a better perspective, that's when things come together and work. Good luck man, enjoying following your journey.
I'm aware of VT's opinions on position management, and the arguments against scaling out that you outlined. They are certainly sound, but they are not for me. There are many different ways to skin this cat we call futures trading. I generally don't prescribe to absolutes.
One thing the VT method of position management does not take into account is mindset. If I am a discretionary trader and my entries and exits are not completely mechanical, but fluid depending on my interpretation of incoming order flow and market info....taking a scale can dramatically mitigate my risk, allowing me to be less distracted by the potential loss and manage what's left of the position with more clarity. This fits me.
Agree. I've witnessed with my own eyes traders with completely and utterly different styles that are consistently profitable every day in the same product. To the tune of 5 or 6 figures each month. EACH month.
The commonality is not the edge or the rules, its the mindset.
To earlier points as well, there are millions of ways to make and lose money in the markets. Expectancy and win rate and everything else doesn't exclude the fact that you have to make the right read in the moment and trade what's sitting in front of you.
Maybe that means scaling: If you've got a market like ES which is making lows but you're seeing prices between 8 and 10 hold and absorb, maybe you take a shot at 9 and 8.5 and 8 to see if they hold. You scale out at 10 and 11 because there are going to be shorts at 8 bailing at 11 who you can sell to. But the market might not move higher at that point, and you can reduce your risk by simply reducing size at highs. If it pops higher, that's fine. Holding full size and hoping they run to 12 and 15 is a huge gamble though. Unless you can sit at 11 and buy another couple thousand to run it higher, you and every other scalper are going to be hopping out to wait and see if somebody big cracks it back down to 8 and 6 and 5. That sell interest is going to cause more people to sell, which causes late longs at 10 and 11 to bail out, which begets more selling.
Maybe that means all-in-all-out: If you've got a market like ZN which is making lows but a 30 lot just sold lows and then 2000 bought it back up, you probably won't get that fill on the lows. You probably have to bid a tick off lows to get the fill. Do you want to bid exact lows? Probably not, actually. If the market cracks and more size hits alongside that 30 lot, it's probably going to drop another tick or two. And you don't want to be long at that point (at least not yet). In this case, scaling warps your risk because you boost size as you encounter price action which is probably going to stop you out. If it lifts and trades higher, you don't want to scale out (unless you're trading like 1000 contracts). You don't want to scale because you'll probably get your price when you offer out. There's big size in the market, and if ZN lifts up to the tune of 2000 contracts, it'll probably lift another tick. Scaling out simply means that you make less money in that case.
Like with everything in trading, it depends on the scenario, and there are no fixed rules to follow.
Ok. And the books are closed for the week. There was definitely some progress made and things improved upon and also some issues that are still unresolved that I will continue to hammer at until gone. More specifically, I was taking more risk, which was good, and executing on more setups. I think my mindset continued to improve this week. Issues that will need some focused attention continue to be that my average winner is too small. I want to see it working towards 8 in the short term. TWIW I was able to trade 3 days this week.
Chances are I will not trade Monday. My sister is getting married on Saturday and there will be a ton going on for me all weekend. I'm fortunate to have been able to trade today.
Comparing this month to last, there was some good and some bad. Overall there are things I'm optimistic about and feel I made progress on but overall I need to be making more headway over the course of a month. That is for sure.
The biggest things I need to improve on are 1.) Trade more days 2.) Trade more volume 3.) Increase Average winner 4.) Increase expectancy to >1 in the near term.
A few of the positive things that happened in May were that I increased my volume, overall and daily average. I improved on my best M6E day, record now +32 ticks. My expectancy did increase marginally and that along with my increased volume produced my best month, +43 ticks.
Things that need attention/resolution were that I started this month in a major hole....I've had a few, mostly at the beginning, days of getting my ass absolutely handed to me (this is why I'm in the micro)....losing 85, 130, 47 ticks. The first day of May I lost 70 ticks, and worked all month to finish +43. So thats great to come back....but it's just not acceptable to have days near that bad. I retooled my daily risk controls and -60 ticks is the cutoff. The issue, though, had been more about consecutive losers. I take a loser, then another, then I'm more risk seeking, and it can go downhill. I'm aware of this and working to resolve.
Another issue that is arising, and this is a familiar one for me....I tend to be a "grinder". Consistently winning, though less volatile. This has always been my way though I need to make adjustments for this market and style which is so dramatically different from my old market and style. Looking at my trades, and obviously by my #'s....I'm doing too much scalping and bailing on trades too soon. I need to be looser and more willing to take the appropriate heat and risk.
This leads to an old problem of cutting size. When I was 100 lot trader I would take a lot of trades w/ 50 or 75 and my backer would hate this. Its always been an issue and I find myself doing it now. I need to resolve once and for all.
Along those same lines I'm starting to give thought of when it will be appropriate to make the move into the 6E. As of today, on a total of 292 round turns in M6E I'm down 335 ticks. I think I need to be net positive in M6E ticks and therefore expectancy to make this move. Probably more for the sake of a moral victory. I've also had the thought Sept. 1 would be a good time to make the move. This lines up. I feel June/July/August should be more than enough time to turn net positive.
I'm ending the trading day and therefore week a bit early today.
Here we have my June stats up through today. At this point I have to say, it is painfully obvious that I am scalping. I'm very programmed to be taking/hitting markets on the turn and to not take much heat. The result of this is what you see...very tight winners and losers. I "push my position" alot....meaning, for example, I'll sell a 2 lot, get some MFE and cover 1 lot....retraces and sell again.
The struggle is this, I end up getting some decent entries but probably not taking enough out of the trades. Yet I'm collecting ticks. I think I have to be willing to take more heat and hold to my ideas....but still take advantage of 'pushing my position' and my experience trading in that way.
All around, quite a struggle doing this on an island by myself in the middle of Pittsburgh. I feel like if I was in an office around peers profitably trading this market in a somewhat simliar style....I know my numbers would be much better...the competition would ignite a fire under me. I must say, for you folks out there that have just read a book and found this forum, and are working to become a trader while never actually being in a professional environment.....wow. My hat is off to you.
I did achieve a some of my goals, but there are many many more left to go.
A few updates since my last update: As I've mentioned before in this journal, I own two businesses I have spent the last few years building, and from which I derive my income. There is management in place, and that is what affords me the ability to devote time to building my trading business.
However, there are some big biz issues that I'm dealing with at this time. Towards the end of June, I had to negotiate and meet a balloon payment on a loan to a creditor. I am happy and fortunate to say that this was accomplished and worked out in my favor. The stress and disruption, however, dramatically affected my trading....I was foolish to trade at all while I was working to resolve this....and as a result I had to step back from the markets until I was able to devote more of my attention and energy.
I'll note as well I have another situation like this brewing which I'm hoping to get resolved in August if possible, I have a minority partner at one business that I am in negotiations to buy out. Final docs are in his hands so I'm hoping there are no snags and we can close. We'll see.
I note these things because they are large disruptions that can take me away from the markets and affect the timeline I'm working to keep in trading....specifically my goal to hit certain targets I've set by September to allow me to progress from the Emicro to the Emini. It's not unlikely that October ends up being a more realistic goal if issues come up w/ the buy out that need my attention.
I am very fortunate to own businesses, but...truth be told I did not enjoy building them the way I had hoped the last few years...it drained me...trading is and always will be my passion and that is why I am working to make this move away from my businesses and back to trading full time. SO ENOUGH ABOUT THAT!
I will update the trading end of things in another post soon, I'm a bit exhausted. Cheers, Gentlemen.
Here we are again closing out another week. In this week I have some things that I did well and that I would call successful, and also many areas I have tremendous room for improvement. Some a bit too familiar.
As far as the way the stats look...if it's not apparent, the whole month of July I was able to trade 6 days only because of "work" obligations. Small sample but the stats look good.
August I am hoping to be able to devote more days to trading, and this week i was able to trade 5 days. I feel the engagement I get from trading five days a week speeds my development greatly.
My Ave win/Ave Loss....still an issue I'm facing. In July the averages got better but they've come in thus far in August. Part of this stems from how short of an amount of time I get to trade each day. I'm essentially trading from ~8am to 11am. This is not a lot of time. I'm basically executing on one trade idea most days. Very sometimes two, or three. Knowing I only have "one shot" I'm very risk averse and often not willing to take much heat. That can be ok at times but my aversion to risk has cost me a lot of ticks.
Again....so much comes down to my morning routine and my execution hours....for me at least. I have to give thought to adjusting so that I could maybe be in front of the screen by 6am instead of 8.
Overall, my confidence and understanding of this market and how to trade it are improving. I'm starting to see/feel the shape of how my trading will progress here.
The journal posted above that I've been using is nice for some things but a bit cumbersome at actually seeing progress with the way it groups by month. I'm going to be using the one below as well, which emphasizes the week. At the stage I'm at right now, it's very useful to focus on putting together a solid week and trying to show little bits of improvement week over week.
