No averaging down, a few comments: 1) stop adding below 50% (if there are no major trend pivots). Obviously, subjective rule, but then again, thats the trick of the method in the first place to know when the trend is still valid. 2)Yes I agree with most positions will be on small size and the stop outs could be on large size. You are 100% right here and this is why I havn't implemented the method before. I imagine a mean reversion PA trader would trade in the style I mentioned as I don't see another logical way to do so. How many reversals are created without some form of retest after all (M,W, IHS, HS).
Perhaps, we understand differently what OP is trying to do. I understand the thread is about adding to an existing position. So, it's not about a high-probablilty set-up for opening a position. I assume by the time the OP is trying to add he already has a position in the black. Hence averaging. However, if we discuss opening a position, my earlier comment is naturally irrelevant as there would be no previous position.
Perhaps, we understand differently what OP is trying to do. I understand the thread is about adding to an existing position. So, it's not about a high-probablilty set-up for opening a position. I assume by the time the OP is trying to add he already has a position in the black. Hence averaging. However, if we discuss opening a position, my earlier comment is naturally irrelevant as there would be no previous position. [/QUOTE] Lee thanks for the comments. The original strategy mentioned was adding to a position to make it GO into the black by consequently adding at with trend pivots. To do so for smaller accounts requires access to stocks, or forex (fractional lots). With futures contracts, one would have to be much more capitalized to use this. Notice again, I am not talking about averaging down. I have a fixed risk in mind and the strategy would add until that fixed risk is met. For instance... Pivot 1: .25% Pivot 2: Add .5% Pivot 3: Add 1% Total risk on play: 1.75%
I know adding to a position plays important role in profitability of trend-following strategies. Typically, trend-following involves relatively low win percentage. By trading around the entry point it is possible to turn some clear loosers into break-even trades. However, still typical win rate is below 50% if by win we mean point gain in the same range or larger than stop loss. Do you understand correctly that your idea is to add ot trades that are not necessarily already in the black? So, for example you buy on break-out but the price returns back into the congestion range. So, you buy more at the bottom of the range so that if the price rises back to the middle of the range you are in profit intead of being at a loss?
Lee, I second your emotion. I continue to use pivots every day that I have traded since 1992, and I teach them to my clients. We use them (daily, weekly, monthly R1, R2, S1, S2) as profit targets and stop/loss levels for existing positions, and as areas for trailing stops. We use a very good technical model for trade entry, and we like to use pivots for profits and risk management. In my personal and professional opinion, pivots are largely misunderstood and abused as levels to fade in terms of a trade entry. Pivots are an on-the-run trading range calculation. Use pivots in the same vein as you would Market Profile - to track established value areas. Again, in my opinion, pivots are great because they are firmly established signposts calculated by a running average of recent market trading ranges. Personally, I prefer the finite resolution of a pivot point as compared to a volatility-based sigma range calculator like Bollinger Bands. My 2 cents. Not sexy, but very productive. Still.