see, in my trading I either picked the bottom/turn or I didn't. If I avg down, that means my trading isn't precise and my signals aren't accurate. But I'm also going for precision. If I see myself holding a loser, either I'm convinced of direction(bad) or not sure where the bottoms going to be(worse). either way I've found that type of trading very destructive over the long haul. I either picked it and I'm right, or if I didn't I'm out. There's no inbetween or Maybe this, maybe that.
I'm not as precise as some folks here. Such imprecision could mean I'm early or that I'm dead wrong on direction. However, I don't know this until the future speaks, therefore, I must protect my capital until plenty of bars are plotted. Some might say for instance, you are wrong when support breaks, but see, it is not that easy. Many times support "breaks" and price ends up doing an inverse head and shoulders, with the shoulders being "support" and the head the fake. Sometimes you might have a good looking support area with what looks like a nice double bottom, breaks it and ends up doing a Trader Vic 2B. Other times, you see support, followed by potential support, followed by potential support, well, which one will it be ? ... and numerous other cases. Support can hold in tricky ways. You could say, well take your loss and when you see the fake, get back in. Problem is repetitive re-entries when price consolidates around support could lead to multiple losses amounting to considerable capital. You see, there are many scenarios that could happen that prevent me from starting a trade on full size, this is why I need confirmation from the market to continue adding capital to my position as anything and everything can happen. You see what I'm saying, support is not an exact price, support is an area, and just because it's bent does not mean it is broken. At the same time I cannot afford to watch this development occur as price goes against me. Only way I can do it is with an ultra small position. Then and only then, when price confirms that I'm correct in my assessment I can begin to fortify my position as the market creates new higher lows and or transforms resistances into support. In addition, it's easy to look back at the past and see how everything developed and say, I should have done this or that. I try to be very careful with that, as I don't like to lie to myself, had I seen in the present what I saw in the future, I would have gone full size, if I did not, I did not see it. It is true that many times I see small winners become small losses , this does not bother me as small winners is not the name of my game, however sometimes I see big winners and I never ever see big losses and friends, that keeps me sane and allows me to trade another day; now that is the name of the game I like to play. Not to disrespect anyone but in humble opinion adding to a loser position is very bad business. It's a sign that you have no idea how to identify support or resistance correctly and it promotes losses on bigger size and potential winners on smaller, that's not something I can do in my trading or even recommend because frankly it sounds like the opposite of the sanity I search for, yes, pure insanity. NAD
I respect your style eventhough is the opposite of what I do, however, one thing Ive learned over the years in trading is that there are many ways to make money in this business, but it's up to us to find and pick the way that suits our personality. Wanted to comment on your post, so what if you add at the end of the trend ? There's no problem with this as long as you have some good unrealized winners from previous entries and/or adds and you have trailed a stop properly in case of trend change. In this case, you get trailed stop and you close the trade with some gains. Sure, it would had been phenomenal to exit everything at the top, but we don't know it until it happens. At the same time closing winners prevents you from catching monster trades, I don't like to do that. Letting winners run and cutting losses short is the only holy grail I know of. NAD
Interesting thread so far and it's surely focusing on a concept all traders wants to master, especially swingers. I to have been trying to figure out how to efficiently add to a winning position but I'm afraid this might be a bad time in the market cycle to do so. I forget the rule of thumb but aren't markets in a consolidation phase like 75% of the time? The gimmick style I'm trying to implement now involves taking a larger initial position scaling stops at logical places but letting the bigger size ride out the trend and then exiting the winner all at once . If a trend forms the scaled stops will just trail along like you mention in your last post. This way I'm experiencing larger exposure to the winning trades without having to add which for me is mental issue but I'm still keeping loses within my expected range. It's like a half pyramid.
I had the same thought. You never know when a trend is over, so trade it until it's over. Often a trending move has 3 pushes, a small failed final push and then reverses. But there are times when a trending move has 7 or more pushes and after 3 or 4 pushes price consolidates, or drifts the opposite direction in a narrow channel. I learned that this is more often than not a continuation setup that lures in counter-trend traders, then uses them to help fuel the next move as they rush to cover positions before profits evaporate. I've traded breakouts that fail after several pushes in a trend, so then I assumed the trend had "weakened" and would start watching for a reversal signal. I'd then avoid trading the next breakout, only to watch a full continuation move equal to the entire previous trending move. Once that happens enough times you become conditioned to assume the trend really is your friend until it proves otherwise. My mentor always told me to expect continuation, not reversal, until a key level is breached.
Absolutely agree. In a strong trend the least probable next move is reversal. Consolidation, continuation, failed breakout, all very high probability but full reversal ? Highly unlikely. This is probably the biggest hurdle newcomers find during their beginning years, they find themselves calling reversals left and right when the odds say, it's probably just a pullback or sneaky consolidation like those found in the pennants of flags. Sadly you can see this deficiency of calling tops and bottoms during strong trends in our very own Elite Trader in just about every thread. I know you said you used to do it too, so did I, seems to be human behavior, until we learn and know better and thank God we did. NAD