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Wanted to get the forums thoughs on breaking a habit of averaging in as a trade goes against....'if reasoning still exists its a better entry, so why not'....and introducing the habit of adding when a trade is gaining potential. Anything that you have done in the past to overcome change in habit is appreciated.
Thanks
I can only repeat what Bob said, imagine how you would like to trade instead and repeat it in your mind, run thru the scenario over and over and then start practicing it live.
However breaking the thought habit of 'if reasoning still exists its a better entry, so why not' , it makes me think of something Josh said in another thread:
Based on my own experience and failings, I've formally adopted two rules:
Never add to a loser, EVER. EVER. If adding to a winner, close the position if the market moves to your average entry price (your breakeven point), and only add above (if …
But basically if you start thinking about adding to a loser answer the question in your mind "Why am I about to throw more money at an idea that thus far the market has not proven correct?"
A very few, and I emphasize, a very few traders on nexusfi.com, over the years, have successfully averaged down as part of a deliberate strategy to improve their cost basis on a trade they still wanted to be in for reasons they still regarded as good ones (which have never included not wanting to accept a loss -- always a bad reason.) They are skilled, usually very well-capitalized, are willing to bail at definite levels where they have good enough reason to accept that they are wrong, and most importantly, are very few.
This is a skill only for highly-experienced people -- at least, judging by the few who have been successful with it. Over several years of being on FIO, I don't think I've seen more than about five or so who could do it. For most of us, it's just denial of reality, and unless you are already extremely successful at trading, over many years and with good, deep pockets, it's really not wise. By itself, this should scare you enough to stop.
It's also one of the most-common "strategies" traders who are losing will try, on trades that are going against them.
Really not wise.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Helpful and take on all points. And have killed any scenario in my trading that is a gut adding to a losing trade, but have not been able to weed out the pre-trade 'scale into' scenarios.
Going to shift the topic slightly away from 'adding to losers' as for me this has been addressed.
The follow on question i have comes to agressing market orders vs passive limit orders.
In general my trading style works for ranges and i trade 95% of the time through limit orders, where putting orders in around where i expect the mkt to have a shift in direction and is how it 'scales into' trades as i have no way to determine an exact level (only an expected zone), without the scaling id have to wait for the mkt to show its shift and then aggress with market orders, in this scenario waiting to show the shift ive also lost out on some of the expected move...so to get to the point....are you saying that its a better strategy to trade only in market orders compared to limit orders? Or is 'scaling into' a trade through a series of limit orders the same as adding to a loser? (Predefined stops are in place for all limit orders.)
All movements are a set of probabilities to move up or down, its almost impossible to know the exact turn, i just setup trades where i think there is a higher chance of a turn and the series of limit orders are to soften the noise for entry and to make sure i dont miss the overall trade.
Hope that makes sense.
Appreciate the thoughts.
This is a subtly different question, at least it's different from the way I took the original one.
Limit orders at range extremes are generally the best way to trade ranges, with predefined stops.
Whether essentially layering in limit orders below your initial buy limit (assuming you will want to go long) -- well, it's not the same as impulsively buying into a loser as it goes against you, but it could work out that way.
I don't really know how to effectively scale in to a position as price goes against it, so I'll need to pass on the larger question. I will just say that I do see a lot of traders say things like, "It can't go down any more," and then, "it can't go down any more than this," and then, "it really can't go down any lower now...."
As always, knowing what your tolerance for loss is, and when it will be reached, is going to be important.
My tolerance is that I can stand reasonable variations, in terms of recent volatility, but I want to not be in a losing position for long, and I personally do not want to add to one. This does not mean that you shouldn't, necessarily, but really only if you have had success with it. I'm only speaking for myself now, so make your own choices, just make them with your eyes open.
A lot of accounts get blown up this way, is my own bottom line.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Understood and agree its a different question. Appreciate the thoughts.
Follow q...if no 'scale into' then do you vary your size per trade, i have to think every setup has different levels of confidence in them, how do you take this into account?
Thanks and apols ive slightly shifted topic again.
This is a perfect example of how everyone is different. I will trade the same size, unless the market or sometimes the time of day (for instance, pre-open vs. after the open in the stock indices) has very different volume or volatility characteristics.
I read every post on FIO (not always in the same detail ), and I can tell you that many traders do about the same. But others will put on more size when they think the trade probabilities are greater, as you suggested. Others will scale in as the trade shows more strength -- say, as it pushes through some resistance. Some will scale out, taking profits as they go so they can lock in something, then either relying on a set stop or trailing up a stop to see if the remaining contracts can have an additional good run.
There are a lot of strategies for trade scaling. Not all of them work as well for everyone, but I guarantee that all of them do have some traders who use them and use them profitably. It does depend on the trader.
For myself, I prefer simplicity. It is hard to be thinking of a lot of things that need deciding, at a time (during a trade) when decisions aren't necessarily that easy to make objectively and well anyway.
