Adding to positions

I am a stock and ETF trader trying to incorporate trend following rules after being unsuccesful with my emotional discretionary trading.

How do you all determine maximum position sizing and how do you add to positions?

My current dilemma is detailed here should you be nosy or want more specifics : http://4nursebee.blogspot.com/2010/02/adding-to-positions.html

 

If you're interested in adding to positions look up scale trading. (google it)

 

Good luck. I myself find trend following much more difficult than any other style of trading.

You can calculate position size using the same method as in swing/position/intraday trading. You must set the maximum risk per position to, say 1% or 2%, and you have to know the stop loss. You can then use the numbers to calculate position size.

If you do not know the stop loss, things get a bit more complicated. One approach involves an estimate of the maximum possible drawdown. Then the per contract capitalization requirement is Cap. per contract = margin + max drawdown

You can then divide your bankroll by that number to get the position size but beware, this approach can lead to excessive drawdown and a very volatile equity curve. It is better to have well-defined stops and use the regular position sizing formula for fixed fractions.

 

If you don't know your stops well ahead, you are not going to survive long enough.

 

Shouldnt each position be independent --thats the whole idea behind position sizing.

If your position becomes 3 x risk you take 1/2 off let rest ride until trend changes or trailing stop gets hit.

never really understood adding to positions - wouldve worked really good if you times the turnaround last year but other than that can only see disaster. Say buy at $25 with $22 as stop, moves to $28, add more now maybe $25 as stop now stock pulls back to $25 get stopped out for a net loss.

First scenario same stock take 1/2 off at $28 let rest ride with stop at original and worst case scenario is a break even now.

just my 2c

 

It's simple...only add if/when you get another trade signal and manage the original entry and add entry as independent positions. For example, both should have different stop management.

Mark

 

add only when you have another reason (entry) setup as long as your current position has not reached it's target or stoploss. it should also have it's own set of rules (target, stop loss, etc). trading around an existing position is a great skill once accomplished.

 

Never, ever add to losers. In seventeen years of trading I have never seen it done for consistency before risk of ruin overtakes.

If you can learn to add to winners and scale out of your profits, you will be very successful.

 

i use trend following strategies as well... What I do is, I'm in a trade which is defined with a trend, then have within your strategy to add to the position at short term panics.

Also when my strategy is almost to switch the trend very close of a stop, with a very small risk it can add almost 100% of the current position without changing the risk by much. According to my testing this adds a lot to the profits... if it happens to fail well the stop was right there so the amount lost isn't big

 

Thanks for replies, interesting variety. I've done a few things since that post. I exited the trade after going all in, and have now entered with a more manageable position size. Over time I will have to answer my original question better. I suspect I will follow along the thoughts of thinking of it as a different trade with new entry point (expecting it to be after periods of consolidation and subsequent b/o).

I've also written down the references in this same forum as far as what books to read. I'll likely finish the Super Trader book this weekend then order the more indepth books.

I am amazed at how important this stuff is and how long I have traded without it.

4nursebee.blogspot.com