A poster named Tradingismybusiness told me there was a better way than averaging down. He said to exit the loss and then enter again lower. He said he would beat me every time. So I asked him to do it and show it even on a SIM so we could see if his idea worked in real trading or was just a theoretical thing. He responded that he was not going to show his secrets or something like that. So, anyway he got real pissed off, wanted to close his account and left in a huff and I have not seen hide nor hair of him since. I was all for learning a better way but he would not demonstrate it, even on even a SIM. And he may have been right who knows but he would not show us how. You see there is the theoretical that can look good on paper but then there is the actual execution of the theoretical that can throw a monkey's wrench in the whole thing. We, as traders have to use pragmatic ways. I was just wanting him to show us pragmatically but I guess I pissed him off and he flew the coop so somebody smart and young should test his way out and report back. I am too old and not smart enough to do so without some hand holding and spoon feeding. I will gladly give up averaging down if some young buck can show me a better way. It is hard to teach an ole dog new tricks but I am willing to learn. I just never could seem to figure out what he was saying and translate that down to a pragmatic way of implementing it. I am not saying he was right or wrong. I am just saying I needed his guidance to do it. But alas he flew away like an eagle and all we saw was his tail feathers flapping. bye ….gotta make some phone calls and get to painting
Thank you for the very detailed explanation Volpri, I appreciate your effort. I understand what you are saying and since I am studying Brooks as well I see where you based your style on. Most difficult part for a less experienced trader like me is defining the context and using that context to define the give up point. If the give up point is too tight it results in a win rate that is too low and too loose results in big losses with big positions. That is in the end the tricky part with averaging in: one takes small wins with often partial positions and IF the stop gets hit it is usually full size. A very high win rate is necessary to make the math work out here.
Win rate is an important metric especially for a scalper. Too tight of SL's are a big reason most traders lose. It is rare a perfect trade comes your way. A perfect trade is one that has "big reward" "high probability" and "low risk" Some would argue why not just perfect the entries. That is extremely hard to do. So, people get stopped out of a good position running tight SL's, they have a low win rate, but worse they lose money when they could have made money. On BO's the SL has to be big which is counter intuitive for most traders. They think with BO's they can have a tight SL. See with BO's you got high probability of a potential big reward (with two legs of movement) so you got two of the variables on your side. You can't expect to also have little risk. You can have deep PB's on strong BO. The volatility has increased even on the entry bar of the BO. You have to give the trade room. I have not touched yet on BO's in detail so I won't say much about it here but the volatility on a big BO bar can be so great that I will make multiple entries and exits on the same bar locking in profits as the BO advances. I don't care about commissions. I see an opportunity to multiple times exploit volatility on ONE bar and I will do so squeezing as much as I can out of that single bar and compounding. Now lets look again at yesterday's trades. I only took two. I no time for any more. But look at the bullish pressure from the open. I took my trades right when the first major PB started and it ended up being a two legged PB of several points. My first trade was an averaged down long trade with high probability and actually low initial risk using the TE because of two reasons: 1) the context...the previous bullish move from the open. 2) I would likely get a good bounce for a quick scalp on the same bar as the entry or the next couple of bars. I got the bounce on the next bar and I took my exit. But I still need a "give up" point BECAUSE I am averaging down. My initial entry was a straight scalp with it's own SL and PT from the TE, but once I start averaging down I have to have a "give up" point and that, by nature, is going to be a bigger loss if it is hit. The flip side is as I average down my BE point is getting closer to actual price than my original entry was. So, price doesn't have to travel as far to get me out with a profit than if I had not averaged down but just held my original position. See, a trader has to always be re-assessing his position especially when averaging down. I wanted a quick scalp out of my averaged down position. However, there was nothing wrong with just continuing to add all down through the several point PB as long as I have that "give up" point set. And I trade in small enough size that even if my give point is hit it is not that huge of a deal. When you start averaging down probabilities change in terms of the trade working out to be successful so you have to adjust your PT to recognize that change and that usually means lowering it from your original PT on your first entry. But you want to try and at least get a tick or two profit on your first entry and a bigger profit on the other entries. The 9930 was a good "give up" point because it was after that big 9:40 bull bar that showed lots of buying pressure, which ALSO had 4 consecutive bull bars after it! So that big bull bar had strong FT thus showing that the 9:40 was not an exhaustion move. The 9930 "give up" point was in the upper 1/4 of that 9:40 bull bar. The very next bar there was some profit taking (see tail on top) and a bit of a pause bar. So 9930 was below that. If price during the PB, that started on the 10:05 bar (my entry bar), were to pull back deeply, it is more likely that it would see buyers below, BEFORE it would reach 9930. That is why it was a decent "give up" point. Averaging down, or scaling in, to be PC and to sound a little nicer LOL, also requires a willingness to exit at the "give up" point, then immediately look for an opportunity to reverse direction (as the market has proved you are on the wrong side) and double or triple up in the reversed direction. I able psychologically to execute right after a bigger than normal hit a trader will find that often, in short order, he has his loss back and soon in a profit and many times, a very handsome profit. Psychologically it is hard to execute after just suffering a bigger than normal loss on the averaged down position. But pragmatically, it is one of the easiest way to get back a loss. Why does this tactic work to recoup losses? Well generally because you realize that by the time that deep PB took you out with a loss, that price has moved far enough to prove you were wrong and it will likely move at least a little more. So, if a trader is able to double up he can get back his loss usually very quickly. It is all about probability. Price proved your original entry to be wrong and moved against you to a "give up" point so now you are looking for a new entry and based upon the move against you as the immediate context. Then you use the TE to assess a new entry BUT this entry will be doubled up or tripled up. There again, once entered in on that doubled up position you are going to have to have use a big SL because extensive moves can have big PB's before they work in your favor. If you put a tight SL on that double up new position you will likely get whip-sawed for a second loss. Since it was an extensive move that took you out of your original averaged down position. If it is easier psychologically you can just start the new entry and scale into it or average down until you get to the double up size. The problem with that is that after you make your first entry price goes in your favor and you find yourself in the recovery move but with little size on, so you only recoup a small amount of your original loss. But with double up and big SL if the move continues you get back your original loss quickly. Again always, be re-assessing with CONTEXTS and the TE any double or triple up entry to get back a previous loss. You still want a positive traders equation on it. Hope this helps. Practice on a SIM. Do this over and over on a SIM. I am not saying do this with real money. What you do with the concepts and techniques I expound upon is your business. I make NO RECOMMENDATION. It is only for educational purpose. You can lose your shirt and pants along with your bank account trading and end up in a divorce too. It is a risky business! And not easy to pull off.
Typing the previous post so here is my first trade of the day. Got to paint some more so not sure how much I can trade. Here is a brief explanation: Larger context. Coming off a bullish previous session todays session opened Gap up (together the larger context) then goes into sideways move that is 19 bars long by my entry and price is trading in the lower 1/4 of the range. I know it isn't 20 bars but close enough for gov work. I didn't actually run the TE equation. I just mentally saw I could get a quick 8 point scalp on high probability, low risk, smaller reward. So I took it. Out with profit on the next bar. Range trading trading tactics.
Ok second trade minutes later. Price in top 1/4 of range. I short and exit 8 points later on move towards middle. Again range trading. Price will sooner or later BO of the range and it by now can be north or south with slight odds it will be north because of the larger context but when sideways moves reach 20 to 40 bars the BO can be in either direction. Keep in mind in the larger context this sideways move is a bull flag.
Here is a third trade just taken. Again range trading short in the top 1/4 should have averaged down some but didn't "you snooze you lose." Anyway, it was an 8 point trade. Previous to this trade I took a trade in MES and will post it next. So 4 trades this morning while typing these posts and all were winners. All were using range trading tactics. Larger context is bullish. Immediate context is RANGE. And if at the top I short and at the bottom I go long. The safer bet is long scalps with entries near the bottom limits of the range, because of the larger context. But since it is a range I am willing to short and to go long. You can practice doing the traders equation use 8 point reward and 8 point risks to plug in to the equation see if you can guess the probability to plug in. Remember in ranges 80% BO attempts top or bottom fail. That is a hint! One will eventually succeed but until...…..See if you can get a positive TE for each trade!
Ok here is the MES trade, a riskier 1 point trade with bigger position size up front. Price just barely above the half point of the evolving range which was not yet 20 bars of sideways move so not yet a range. It was a quick short scalp.
OK I gotta go. Done trading for this morning. Need to get painting. Gotta keep the lady happy. Maybe I will get to trade some this afternoon, we will see if she lets me ROFL. Summary, 4 trades all winners. All good TE. Lock in them profits! Cut them profits shorts. Three straight short scalps and one long scalp. No averaging down this time but there was opportunity I just missed doing it. After all I am 65 years old and can't move too fast. ROFLMAO. Gurus are choking in their spittle to see such rule breaking. High win rate. Good for a scalper.
Pretty clear trades today Volpri, congrats on taking them. Funny, I took almost exactly the same trade on (M)ES: When you talk about the high probability of breakouts failing, do you mean you keep your stop really wide to allow a false breakout?
Thanks for responding and sharing your experience. You are correct, it is hard to change one's trading management style. He should have show you some examples.