I have a fairly basic question. How many of the traders here scale in and out of positions. For example, a stock has support at 60, there is no guarantee it will stop at 60 or even hit 60. So do you buy 300 shares at say 60.20, then some more at 59.80 so your average cost is 60? That way you have a position if it does not hit right at support, and your still in the position if it moves slightly past support. Any comments welcome. Thanks
I scale quite a bit. Using your example, if I expected support at 60, I might enter with 1x at 60.20 if it stalls there. If it pulls back a little more and confirms support, I might add another 1x or 2x at 60.02-05. If it falls through to 59.80, I will likely pare out half to reduce my exposure and then let my original amount profit or hit my stop. Very interested to hear others ideas here. JB
I generally don't like buying going down into support. In the example given I'd wait for it to touch the 60 area and then go back to e.g. 60.05 at which point I'd start buying. I would begin reducing at 59.95/90/80 depending on chart, expected timeframe etc.
We like to "take you full piece at once" for entries. We don't mind scalling out of a position, ...buy 4,000 at 50, sell 2,000 at 50.50, then if it goes up you're happy, and if goes down, you're ok with it as well.
Don Don't you miss some trades due to the fact that some will not hit the full support, but reverse first. Do you have very large stoploss?
I usually take a full position first. When I first started I would add some when it went my way but that just raised my average cost and lowered my profits. If I really believe in a trade I will only add when it is going against me to get a lower average cost per share. If I end up being right about the trade I really clean up then.
if I am following a trend following system than a small scale into and adding to the position as it works in my favor. I NEVER average down and I stop out of entire position when I am stopped out If I am following a anti trend system than I get in one big position and scale out when mania occurs. I will stop out of entire position if it goes against me. I NEVER average down for these. Robert Tharp
>I NEVER average down I certainly don't want my post to leave the impression that I believe in averaging down either...I DON'T. If I plan on support at 60.00, I will purchase the stock say from 60.20 on down. If it stalls at .15 I may take some in case the bounce occurs at this point. If it moves a bit lower or bounces off the support I may add another position at the better price. I NEVER add to my position below my support level as a way of improving my average price. I believe that leads to things ugly. JB
No, never average down without good reason. You have to know what you're doing, and the second (lower) buy is always just above a level of very strong support (and above my stop). If it crosses under that level then I get out fast and don't loose much on the second buy. It works for me 3/4 of the time. The rubber band needs to be stretched, not broken.
I would read the tape if the stock is fairly thin (<700K) and get a good sense if $60 is going to hold, (i.e. Big bid, uptick bid etc.) if you buy the stock at $60.20, of course you believe that the stock is going to go higher, otherwise why would you buy it. But if the bid drops from say $60.10 to $60.00 and $60.00 prints, then get out immediately, as the stock will usually goes lower. If the stock prints . 01 then this is a very bullish sign and that the stock will usually retrace higher. I don't believe in giving the stock too much room ( 10, 20c max ) get out and regroup, and I definitely don't believe in averaging down, unless the stock gaps down more that 50c.