I guess my use of the word "adjustments" wasn't clear. Maybe I should have used the word "moves." In my previous posts, I mentioned four ways to "adjust." I consider exiting a losing trade an "adjustment." I consider exiting any losing/winning trade and entering a new trade as an adjustment. I consider laddering your trades as an adjustment. I consider the attempt to repair a losing trade as an adjustment. Leaving the trades alone can be a "move" as well. I simply have found that, in my experience, that repairing a losing trade was the least profitable move or adjustment.
<<< . I simply have found that, in my experience, that repairing a losing trade was the least profitable move or adjustment. >>> If that's been your experience, perhaps that's a reflection that you need to alter your criteria for initiating trades. Perhaps the issue is the quality of your stocks selection, the industries you are concentrating in, the % otm safety cushion you use, the length of your contracts, the option strategy you apply, the option premium you desire, the volatility of the stocks you select, ect...... I woulde expect you to have some negative experiences. But if there's an excessive number, perhaps the issue is your "criteria" for initiating trades. Put Master
Yes, as a retired obstetrician, I am definitely interested in pregnant butterflies However, I have not tried to trade them. I worry that the underlying will visit certain points and never return to others, leaving me with gains balancing out my losses. I suppose I should paper trade them for a while and see how it works out. While it's a lot more work, perhaps it would also be more profitable.
In adjusting a losing trade, the adjustment can only be done when trade loses about 30% of the maximum risk. Any loss greater than 50% will be a goner and it is best to close the trade. Next, what is the new view of the trade, will it be bullish, bearish or neutral. Once the view is confirmed, adjust it and see whether the risk can be reduced or at least stay the same and still maintain good reward. If that is possible, then i will adjust to stay in the trade. If it increase the risk or the reward is not good, then it is best to close the trade also. I use thinkorswim as a broker and they charge commission per contract and this help in my adjustment. For example, if you have optionsxpress which has a minimum of 10 contracts commission. Adjustment will be very difficult.
Adjusting a losing trade will always result in an inferior risk/reward ratio relative to initiating a new trade.
Mark, the actual magic number is 28.4587...% (sorry can't give out the whole number), but the OP just rounded up to 30% for convenience and, obviously, to preserve the secret.
Hi Mark, About 30% is just the right time to adjust the trade. You do not want to adjust the trade too early and you do not want to adjust the trade too late. Maybe I should take the word only away as it based on my experience. I find that if you adjust greater than 40% loss. the reward may not worth the adjustment. Chee Yong
I have done detailed probability analysis of statistics presented on ET and I have determined that 88.2% of them are correct and the other 23.1% of them are made up.