One more and that'll be it for the day. Real quick....buy 60.25 -- that's where the stops are. Not the bottom? Not a problem, buy more 58.25. Ahh....that's the bottom. Partial out at 59.75 -- take profits, manage risk. Still not the bottom, buy 57.25...ahh....glad I managed risk. Now that's the bottom but just in case....take a partial at 59.50 to manage risk. Take another partial at 60.75 and leave a runner on this time. Why a runner now? If you pull up the 5's we have a triple bottom -- super, super bullish. If you look at the 1's we have a falling wedge breakouts (super, super bullish) -- no, no, do not buy a breakout. Buy on the support of that pattern, like illustrated. Trading breakouts for day trading is a losing strategy. Finally, I got an order parked up there at 63.75. Why? Last high minus 1 tick -- that simple. I got a trailer on this one too in case that doesn't get hit I don't want to give this profit back. If you approach the market with a random eye all you are required to do is put yourself in a position to take advantage of opportunity. I have no idea where the market will go next but I don't need to know to make money. Stop trying to time the market. Focus more on managing your account and risk. Timing is a distant third.
One last thought....if you study statistics of the stock market you will find the distribution is an F-curve with normal bell curves within that F curve. If you draw up a histogram for a consolidation (pattern) area is looks normal. Buying a breakout is like buying in one of the tails of that normal curve, which represents 2.5% of the data. In other words, you are taking a trade that <i>may</i> (emphasis on may because the stock market isn't an exact science) have a probability of 2.5%. The only way you can win trading breakouts is if that normal curve within that F-curve reverts back to the F distribution, rather than remaining normal. How do you know if that will happen? You don't. Trading breakouts is statistically an impossible strategy to win with. I'm speaking day trading here.
PFT, do you go in with the same amount of contracts with each add or do something like 2 with the initial, 4 with the first add, then 4 or more with your 3rd and final add or do you keep your contracts the same with each entry?
In the examples I attached the contract sizes are the same but I have done what you describe....start with 2, add 4 on the next, and possibly 8. This is a good way of doing it but if I F it up I'm up the creek. What I'd rather do is go 2, 2 and then add 2 at a higher price when the trade is going in my favor. I will do that on occasion. It all depends on the look of the chart.
Interesting to see this pft. I trade with the trend but used to trade something similar (but more mechanical) where I would take up to 16 positions (1 at a time) against the trend. Huge win rate, good curve, but those losers were murder.
Excellent, excellent, excellent thread PFT. It's quite interesting to read your style hear, because I'm an investor by "trade", but I've been learning to trade more lately, and your style is almost identical to the style I've been developing. It's almost a pseudo-invest trade style if I'm reading your posts correctly. Kind of like looking at the markets almost from a market maker strategy.
Oh, to add on, I'm not saying your strategy is a pseudo-invest. That came out wrong. Your daytrading, but I'm using a similar strategy on a longer term basis. When trades become very successful, I immediately take profits, but if they move against me, I "build" positions. But I only build these positions on securities that I'm comfortable being long or short anyways. As an example, today I bought SAA at 59.97 planning on holding it for a while. It shot straight up today to 68, so I sold half my position. If it drops from here, I'll add more at about a standard deviation and a half below this point. I've already "been profitable", so the risk is reduced.
Or you could just take a small loss, reduce risk and wait until you do make a good call to add on retracements. I understand about the difficulty of picking the best entries time after time well that's what re-entries are for. Some people just prefer to increase risk by letting a loser getting even bigger, I would never be able to understand that. Small losses are fine, what's the big deal. Anek
well said...i like tight ass stops and if i'm wrong i'm wrong....and wait for the next opportunity...
i did something like this. care to show an example/explain a scenario where you i) stopped out of the first position without adding a second/third. ii) stopped out of the 2nd position without adding a third iii) stopped out of all three (stopping out meaning you take a loss)