Layering trades when daytrading, does it make a positive difference?

Discussion in 'Strategy Development' started by extra chunky, Jul 20, 2005.

  1. I have been trading equities for quite some time, mostly position trading. Over the last several years I have added daytrading to my game and I have finally developed edges that are reliable. I have read virtually all of the most important trading texts. I daytrade both long and short and I will trade anything that shows me a set-up. My entry method results in a huge amount of tradable set-ups over the course of the day, day in day out. Since my "basket" of stocks is very very large.

    My issue or question that I would really appreciate input on is the following:
    Some trading texts that I have read advocate the idea of layering trades. Meaning that when you take your first trade of the day, you should not put on another trade(different stock), until the first trade is showing a profit. The idea being that it prevents you from having several recently opened trades going against you at once and stopping you out of all of them. I see a couple of problems with this seeming "safety-valve" technique. Another concept that I have read about in the context of daytrading is that if you have a few losers or breakevens in a row you should consider shutting down for the rest of the day. Again this seems smart on it's face, but one can easily have a bad or slightly rough morning yet the later part of the trading day may contain some of the best trades of the week for you, there is no way to know in advance. How do you get those opportunities back. You can't.

    I haven't made up at my mind yet on this general area of "control techniques" I have seen several authors recommend such ideas, yet I have also read something to the effect, by Chuck Le Beau (pretty smart dude), that said these types of attempts to reduce risk end up being nothing more than filters that introduce degrees of freedom to a trading system, thus they have no real mathematical value in contributing to a method's return or expectancy.

    Thus far I have arbitrarily been using an X amount of dollars lost for the day(very tight amount) stop trading control, and the results have been mixed, slightly ahead, and I always wonder what if I simply kept taking trades throughout the day as indicated. I size my postions correctly and my risk per trade are all correct. I use stops on every trade. My observations show me a pretty strong result as the number of trades taken increases,which is what should happen if you have a viable edge.
    I have also noticed that bad days are invariably followed by very good days, so the methods I use have a great degree of "buoyancy" or drawdown resistance if you will.

    So this is my puzzle. I'm grateful for any wisdom shared..
  2. Confirmation of the Obvious....................Adding-on to winners is a good way to create bigger profits. Adding-on to losers WILL eventually destroy you in one fell swoop. Regarding multiple consecutive losses, you should continue trading if indeed you have a good "edge" in the market. Who's to say that the market will be good to you when you decide to resume trading? During a "cold streak", you should reduce your position-size until your equity is regained.