Trading Winning Positions - The optimal approach

Discussion in 'Strategy Development' started by mschey, Feb 16, 2006.

  1. tomorton

    tomorton


    Sorry to cause confusion - yes, b/e means break-even but I meant to say price.

    A second buy order would trigger at first trade's entry plus 87pts, then the first trade's stop is moved to entry, which is b/e. A new trade opens every 87pts higher and all previous stops are raised 87pts at the same time.
     
    #31     Nov 26, 2017
  2. I think I do not get it upon reading your recent post.
     
    #32     Nov 26, 2017
  3. tomorton

    tomorton


    Its a simple approach but easier to do than explain. The idea is to have multiple trades opened at the same interval as the trend continues. Each trade has the same risk in £. Only the last trade loses £ capital, the one before it breaks even and all the others lose each the same risk in £ but that is from unrealised gain. The net gain realised when all trades close simultaneously is far greater than the losses and far better than holding a single with-trend trade throughout the same distance.
     
    #33     Nov 27, 2017
  4. Are all trades long or short? Or are you doing both at the same time? Are you saying you have more evidence the trend will continue as it goes, otherwise why not not just open with a larger position?
     
    #34     Nov 27, 2017
  5. "some tight wad like Buffet that worries about how much he spent on his Egg Mc Muffin?

    Now, that's funny.
     
    #35     Feb 3, 2018
    comagnum likes this.
  6. Cat88

    Cat88

    My read is they're all long or all short trades. Using numbers, you buy at 100, stop at 99.13. If the price moves to 100.87 then you buy a second unit and your old entry (100) now becomes the stop. The loss on your first unit would be zero because you bought and sold at 100. Your loss on the second unit would be 87 pts.

    If you bought the second unit at 100.87 and the price continues up another 87 points to 101.74 then you buy a third unit your new stop becomes 100.87. If the market hits that stop then you've lost 87 pts on the third unit, nothing on the second and made 87 on the first unit. Again the total loss at any point in the trade is always going to be 87 pts.

    The advantages are it's a simple rule which is easy to keep track of and code in need, secondly it gives a safe way to build a big position.

    If you get up to a 10 unit position for a cost of only 87 pts then that's much lower risk and higher return than putting on 10 units straight away with an 87 point stop which costs you 870 points and you're not guaranteed any profit.

    If you've got a 10 contract position using the tomorton process described above, then you would already have 8 guaranteed in the money contracts, one at money and one out of the money. Also by implication the first position would be in the money by 8x the stop distance (if my mental counting happens to be correct!).
     
    #36     Feb 6, 2018
    tomorton likes this.
  7. tomorton

    tomorton

    That's great Cat88, clearly put.

    I don't use r:r but this grid system quickly breaks into double-digit r:r. I don't know of any other strategy that even considers double digit r:r as a possible outcome.
     
    #37     Feb 6, 2018
  8. Cat88

    Cat88

    There's a second more subtle piece of knowledge which sounds obvious but reveals the insight of the process, which is that you cannot know which of the initial moves is going to become the big winner.

    With hindsight we can say that was a big winner I should have put on 50 units! But this is actually death unless you are purely mechanical and have rigorous statistical support for your bet sizing. I.e. you know how many times a trade set up will become a disproportionately big winner.

    What it really points towards for me is that as a winner continues to win it's survivability rate actually climbs, so a move that's gone 5% in one direction is actually a lot more likely (say 15%) to continue in the same direction than a trade thats gone 1% in your favour (which is probably just white noise).

    A move that's 10% in your favour has a much higher probability of continuing in your favour than reversing because so few trades actually go that far. Maybe only 3 trades will have moved 15% historically so your chance of becoming one of 4 all time 15% is 25% which is better than 15% chance, which better than the white noise.

    It's like every hall of famer a sport person passes, the more likely they are to be the greatest of all time (as measured by stats). Hence add to your winners but don't spend a 100 million bucks on a college prospect.
     
    #38     Feb 6, 2018
    tomorton likes this.
  9. Cat88

    Cat88

    Thanks tomorton - but what does r:r stand for? risk return?
     
    #39     Feb 6, 2018
  10. tomorton

    tomorton

    Nearly, its risk:reward, same thing.
     
    #40     Feb 6, 2018