I have a strategy in which I scale into positions. Let's assume I am talking about a long position. I will not add to my position unless it has gone against me (I know..some people do not agree with this, but that is another topic). At each level, I invest the exact same amount of $. I have statistics that evaluate every trade made. In this example (Oct 2005-present)... When entering a trade for the first time (POINT A), I have made: Total of $78720 Average Trade = $360 Median Trade = $140 WINS = 130 LOSSES = 83 BREAKEVEN = 5 WIN % = 61% When averaging down my position and adding (POINT B), I have made: Total of $50320 Average Trade = $430 Median Trade = $280 WINS = 84 LOSSES = 33 BREAKEVEN = 0 WIN % = 72% POINT C Total of $29600 Average Trade = $640 Median Trade = $310 WINS = 32 LOSSES = 13 BREAKEVEN = 1 WIN % = 71% What I am trying to figure out is...if I should completely eliminate POINT A, and reduce all the exposure I get at that level (with the 213 trades)...and just invest 1.5x as much at POINT B and POINT C. I understand I will miss out on the trades that never get to POINT B, but not sure how to handle it. I am not a statistics guy, so I am drawing a blank on how to evaluate this situation...so I would really love input/questions from others out there with an opinion. Thanks in advance.
Not sure if there is a "correct" answer. Couple questions that I have, How do the Sharpe and/or max DD look. Stability vs maximizing profits would definitly play a part. What about .5 1 1.5 as sizing? Paly around with it a bit until you get something that you are comfortable with.
I've got all the numbers...I know how to calculate Sharpe ratio...but would you want to see it on a per trade basis or weekly/monthly?
I wasn't implying that with the Sharpe, I could tell you the "perfect" way to trade it. (Other people around here might try, but I don't think there is a "perfect solution.") Look at the DD, euqity curve, etc, and figure out what way you would be most comfortable. Does taking the "A" level trade reduce or increase drawdowns relative to returns? Improve or hurt Shapre Ratios? your comfor with each of these changes.
tex, if you don't take A and it never gets to B, then you must have a plan for averaging up into the move if you really want in on the move. But something along the lines of what was described above works for me. Scale in 2,5,10.
Well yes...but the trades that get to POINT B, will also capture the profits made on POINT A. The only ones that I will miss out on are the ones that only go to POINT A and never get added to.
Definitely going to try the .5x,1x,1.5x and see how that goes. To eliminate all of the trades that ONLY get to POINT A looks statistically awful...b/c those are the trades that I am actually "right on the dot" with.
Hi, Try adding positions only when the price retraces away from your signal/entry. Yes it's going against your position.... Instead of adding later when the position is trending in your direction.... This way you enter with say 2 contracts, add 2 more when it goes against your position by enough to pay for the trades plus whatever amount your study concludes is likely to work. In my case I see retracements where it's safe to add 4 points above the Dow mini entry. It retraces 50% of the time after initial entry and it retraces 4 points 60+% of the time... That's what I mean by study. Look back on your charts and see what works for your entry's. The nice feature of these second entry's they are closer to your stops so your loss's are smaller then if you entered, then re-entered again further into what was a profitable trend only to have it reverse and stop you out..... For a larger loss.... Does this make sense? Good trading!
Hey, I am only adding to my position when the trade is going against me. But the farther it goes against me, the better the trade becomes statistically, and therefore the better the entries become. As of now, I have just been doubling up per se for the same amount at each level. So I buy $10k in stock at each price level. I have some good data, and am trying to possibly see if there is a time of day that can help make my decision more conclusive (ex...if I see a trade early in the morning, do not play the first entry, but if it comes later in the day, play it). Not really sure I understand your suggestion very clearly. Also, these postions are only going to get stopped out on breaking news...otherwise they will usually stick within trading parameters. Thanks for the response, take care.