Knowing that once a daytrade is put on, there is roughtly a 50/50 chance of price moving in the right direction, and any trade can last from a few seconds to a few hours. I'm lookeing for some ideas on trade management, once my strategy signals an entry. Has experience shown that entering a trade with the full position on at time of entry, (then lightening the position if the trade starts going against you and maintaining the full position if price moves in the right direction) is more effective than entering a trade with a partial position, then increasing size as price moves in the right direction? All constuctive responses are appreciated.
Who told you there's a 50% chance you'll be right? Depends on your methodology. If you're just flipping a coin, then just flip a coin.
Why do you only have to increase size as it moves in the right direction? Unless you pick the exact bottom every time you enter, you are going to experience some movement against you, so why not take advantage of it? Even 1 tick/cent adds up over the course of a long time. Note, I'm not advocating the "doubling down" approach, merely averaging down to fill the required number of shares/contracts as dictated by your risk, with an overall stop which cuts you out when you are wrong. How you divide up your entries now comes down to some good record keeping...just track how much a trade goes against you every time you enter (Maximum Adverse Excursion or MAE). This way you can come up with an educated way to stack your entries and see which method works best. In any event, you'll have a reason for whichever method you pick, which is always a good start.
Not worth the hassle, unless you have a system that specifically calls for it. My suggestion is to keep things simple and focus on just nailing the single position as best you can. That's challenge enough. In my experience, concerning myself with adding to an existing position either on strength or weakness just complicates the trade, and often leads to entry errors and added trading costs that over time negate any extra gains.
Depends on a huge number of factors and contingencies. Different strategies and markets will have different characteristics and I'm sure two people can give you opposite answers, and both be correct in light of their experience. Some people take lots of shots and end up with mostly losers, but bet that every so often they'll catch a huge runner that develops into a new multi-stage trend. Averaging into positions makes sense for this type of strategy. For my trading I try to catch specific discrete moves with high probability and so almost never average up. I do often scale in though (starting with a partial and later increasing to full) in situations where my entry is more of an area rather than a specific price.
Thanks for the replies. A main reason for this thread is because when I enter a trade with a full position, I tend to hesitate because I can't seem to seperate the $$ associated to each trade. If I start small, then add if price goes in the right direction, I tend to be more confident, less hesitant and don't get butterflies in my belly. However, it does definately complicate the trade. I don't know how each technique will perform, ong term. Also, I am curious to hear other trader's thoughts on trade management.
If the setups you trade have an average 50% win rate, the most profitable method of trading, in my opinion, is to place a profit target twice the size of your protective stop. This gives you enough overall profit to cover commissions and slippage and end up with a good overall profit. If your winning trades tend to run more than twice as far as your protective stops, then use a soft target and manage the trade based on the price momentum as price moves toward the next support or resistance level in line. If you haven't defined your setups clearly and you don't have months of statistics compiled for price behavior under a variety of market conditions (channeling trend, strong trend, wide range, narrow range, indecisive chop) to know when conditions are right for you to trade, where it's best to enter, where to place stops that are likely to survive, and reasonable levels to target profits, then any advice you get won't help you until you get your business plan together. I extensively tested scaling strategies and all in/all out strategies in a simulated account and found that all in/all out was psychologically the best way for me to trade.