<i>"If I come across a setup that is good but not great I will hit it with a 1/4 position. If I stop out on that and it turns into a very good setup I will hit it with a 1/2 position. And, if it turns into a great setup, then you can probably imagine I will hit it with a full position. In addition to this I will average into a position if I think the market is just giving me noise. This way I don't get tagged."</i> Like everything else in trading, that all depends. Our profession is nothing more than endless shades of gray when it comes to rules, guidelines and parameters. All week long I worked the "average up" tactic of money management you describe above. Not to be confused with averaging down or inverted risk to reward scales. The benefit of averaging up is adding to positions while price action moves in favor... allows one to "safely" leverage bigger positions with smaller total risk. The disadvantage of averaging up is getting whipped out or "tagged" in sideways volatility. Most of my entries today and thru the week were profitable on the first leg in. But... adding the second 1/2 position after price moved in favor too often stalled near there, reversed, took out the entire position for par or small loss before heading back in the favorable direction again. In other words, had I merely taken one entry each trade and managed that without adding on, all five sessions would have been solidly profitable results. There was nothing wrong with entries... at all. It was purely the trade management portion which clashed with price behavior. Overall the week was profitable, but far less than it would have been using all-in and all-out management technique. Now, had this been more of a swinging or trending week instead of pounding sideways volatility, the results from averaging up would have been enormous. I worked a trade management approach that loves deliberate tape action but hates gyrational pounding tapes. From the very lows today I repeatedly bought the market (ER2) fully expecting an afternoon lift to pivot point or higher. Got stopped out of every trade after the second piece was added. Leaving the first entry alone, any / all of the longs would have held and easily caught the expected updraft. Moral of the story? There are three distinct parts to every trade. The entry method. The management method. The exit method. All are equal but different components of any approach. Scaling in or averaging up works great in gentle, deliberate tapes. It suffers greatly in wild gyrations and exaggerated chop. I re-learned that lesson for the umpteenth time this week myself
Today, I did something I didn't do before: I waited, I didn't fight the market, I let my short bias disappear into the thin air. I made a conscious decision to watch the market go up and up and up. In the past, my short bias would have made me trade against it 30 times and get slapped 29 times. I think I have grown a lot.
If anyone watches me trading, you will find an emotionally crazy person: I take any profit I see, never let the profit run. Also, I never accept loss, always wish the market to come back, often end up losing huge. I used to say this to myself: I'll never exit a trade without a profit! I know I was crazy, I just want to do crazy things while the damage is small. If I have a multi-million dollar account, I wouldn't dare do those crazy things. Sometimes I look at myself and think: What the hell are you doing? Are you fucking trading or what? I blame my plan for my bad behaviors. I didn't have a good plan, I kept changing it. Think about it, if I don't have a completed plan, how can I trade confidently? Right? As of today, I completed my plan! Congratulations to myself! From now on, there will be no excuse. But I just realize this summer is almost over, I have to go back to my day job in a couple of weeks. I don't have much time to trade anymore. I hate to go back to my day job!
Many bad things about my day job. My day job is one reason for my day trading. The worse the job gets, the more determined I am to trade.
4Dtrader.... why not quit that job... and do something you like? At least if you do it now you'll still have some dough
Substantial progress every day. It sometimes surprised me that I could make so much progress each day. The learning curve becomes almost vertical at the end. I was thinking of the beginning years when I was trading penny stocks, I was clueless and it took a long time to understand something, and after a long time I had a following understanding that the previous understanding might be wrong. The first two years were total darkness. I still remember I followed LU (Lucent technology) from over $2.0 to $1.7, thinking that it couldn't go lower. Those are the learning years! We were all stupid at one time, weren't we? Now everything is open and clear. That's a great feeling. Most important of all, I can take some money from the market. Of course, I get stupid sometimes and give it back. But it's a only matter of execution now.