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operator
Registered: Mar 2008
Posts: 494 |
05-16-09 09:34 PM
Quote from trendy:
Sorry, but that doesn't sound like a very robust methodology to me. If the initial trade moves in your favor, you will cash on only 3 contracts. However, if the trade is a loser, you will be exposed on 9 contracts.
I agree. You should have your biggest position size on when you are right and your smallest position size on when you are wrong.
Unfortunately most traders have it the other way around.....
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stevesbg
Registered: Feb 2009
Posts: 300 |
05-17-09 03:49 AM
Quote from operator:
I agree. You should have your biggest position size on when you are right and your smallest position size on when you are wrong.
Unfortunately most traders have it the other way around.....
Clearly it is not the strategy for you...Feel free to post your own "more robust" alternative by all means.
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Now is Now
Registered: Apr 2008
Posts: 2352 |
05-18-09 01:03 PM
Quote from stevesbg:
Alright, I think I understand your comment and questions
I have asigned a value to what I call "wiggle room"..Lets say for example, that I will hold a position while it oscillates up and down for about 2 points, depending on what lines up above or below my entry. This "wiggle room" is based on an estimate of local volatility.
ENTERING IN INCREMENTS INSTEAD OF "ALL IN"
The way you enter can affect your ability to stay in a trade as it "wiggles around". For instance, in times of increasing volatility a trader COULD enter in increments (depending on the position size). For instance, if you normally put on a position of 12 contracts all at once, in times of increasing volatility you might instead put on only 3 contracts initially. If your wiggle room was 2 points, you might wait and add 6 more if the position went against you (up to your 2 point stop). One of two possibilities will happen at that point. Either the position moves in your favor, in which case you would scale out your initial 3 contracts, or the position would continue against you resulting in a stopped out trade
If the position moves in your favor, you have established a position slightly smaller than normal but at slightly "better prices"
If the position continues to move against you to your stop out point, you take a loss, however the loss is smaller than normal because your position is slightly smaller AND a portion of that position was established at "better" prices.
Modifying your method of entry is one way of managing changes in local volatility.
FRAMING MARKET ACTION
I watch the markets reaction to events including economic reports. If the market reacts favorably to negative events I take notice. Conversely if the market reacts negatively to events that normally one would see as positive, I take notice. The way the market reacts informs me of a bias. I look to trade that bias or tendency.
When the market opens "in value" despite potentially negative economic news it tells me that the market is discounting that news. If this view is correct, confirmation of that bias will come when the market tests the previous day's value area low and bounces off it to the upside. If my opinion was incorrect, I would have taken a loss on my first trade and reset my strategy looking for an appropriate place to get short.
Ok...while I have a moment this morning....
I understand your example, however what I was trying elicit from you is how you use the 2,3,5 , 7 and 10 fading function related to the Friday trade, if in fact it would apply....or any other example you could offer.
I don't have a clear understanding of "fading" and that is why I don't use it other than in my example if it is in fact "fading" by definition
NiN
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MandelbrotSet
Registered: Dec 2007
Posts: 7246 |
05-18-09 01:38 PM
Quote from operator:
I agree. You should have your biggest position size on when you are right and your smallest position size on when you are wrong.
Unfortunately most traders have it the other way around.....
Yeah you're right.
1. But it means you have to take the initial loss when you're wrong, and most traders are adverse to doing that.
2. It also means you have to let your winners run for a bit, and once again, the money management style expoused in this thread doesn't allow for that. It scales out of winners while scaling into losers, not exactly what I would call the optimal way of doing things.
3. Last but not least, the way a trader really makes money in the game is to scale-up in size (which happens naturally when you follow the first two principles I wrote and put in bold).
***
Thanks for pointing this out and enabling further discussion on the topic. Hopefully the OP won't get too offended, take his ball home, and stop playing.
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stevesbg
Registered: Feb 2009
Posts: 300 |
05-18-09 08:46 PM
When the previous poster finds a way to have big size on only when they are right, please post that solution.....
When the previous poster finds a way to have small size on only when they are wrong, again please post it.
I am always glad to learn something new.
Averaging into trades keeps a trader in the market long enough for his or her edge to kick in. It is an unfortunate necessity in markets that are noisy (like index futures). If like many newbies you have no real edge, then this method won't help you....and it is probably wiser just to stand aside until you develop a tradeable system.
Scaling out of trades works very well in markets that cycle back and forth through price ranges (like the S&P). Scaling works particularly well at the beginning of a trade because it allows the newbie to ring the register and develop some confidence. As always there are tradeoffs, but generally speaking I would suggest that new traders scale out of winners when trading a mean reverting market on an intraday basis.
Finally, this is simply my approach to trading the ES contract. I have done my own testing of various elements of the work and find that these ideas work for me at least. I want to suggest that traders become good researchers of their own markets and trade ideas. Ultimately it will serve you best to arrive at your own conclusions.
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Spectra
Registered: Jan 2007
Posts: 2220 |
05-19-09 05:33 AM
Thank you Stevesbg for an intelligent discussion of volatility and scaling in.
I have two additional questions.
How have you been able to keep the flamers away?
Two years ago we began an educational series of articles on ET and got obscene reactions by newbies who obviously had little trading experience, or worse lots of experience but a long period of losing.
Second, we have done lots of studies with value areas and found that over the long run with real cash, they lead to large drawdowns.
Have you traded cash with some of the previous described methods, and what has been your experience?
Thanks,
Successfully,
Alex L. Wasilewski
Co-Founder & Head Trader
Trades That Work
www.puretick.com
1-877-GOLONG1 ( 1-877-465-6641 )
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