I am looking for additional insight on ways other traders add to winning positions (primarily for swing trades). Currently I have been using a basic approach whereby I am adding a UNIT for every 1 x 10 day ATR (average true range) that the price goes in favor of the trade. I am also looking at price behavior on 60 minute and daily charts to confirm the add. When I add I am also adjusting UP my stop on both positions (the original share amount and the ADD unit). Basically on how I am running my stops, it takes ONLY 1 X pyramid to get my trade to break even, and then from there I am adjusting my stops so that I am using MARKET'S MONEY while adding to my position for every time price moves in my favor by ATR(10). So far, this has been SOLID when I catch a trend in a stock on a swing trade. Nevertheless, I am looking for exposure and ideas that others are using, or have read about that have some LOGIC on HOW to add to a winning trade? Thanks in advance for any help and insight. PQ
...my gut tells me that knowing whether you play a mechanical system or trade discretionarily is relavent to the question. Could you please tell us? Thanks. - Mike
Harmonicpatrick seems to be referring to a technique the Turtles use of adding to winning positions when appropriate using volatility (true range is one) measurements. Adding to positions works well in trends but can be suicidal in choppy markets in which swing traders can do well. To me swing trading involves being in the market for the 2-4 day swings and I would not dream of adding to winning positions but rather exiting while the going is good and hopefully not be in a position when the market pulls back from the move even for a day or two. After the first few days of a move conditions change and it is not the same game. I have to be on the lookout for situations where again optimum conditions exist.
Assuming you can tell when you are right in the early going, I would suggest adding on the reactionary moves against the primary direction (your bias). No need to pay up when someone is willing to sell it for less. I suggest doing this in decreasing lots in an exponential way. A simple parabolic equation will work, but you need to determine that equation given your risk parameters and expectations. Alot of traders add linearly or even exponentially higher lots as the trade goes in the favor, I don't suggest this method. I also suggest avoiding averaging when your initial position is losing. All in all I think it is more important to control loss than to pyramid gain, the former is the horse, the latter is the cart. Goodluck,
My own personal experience with successful adding to positions is to add in a true pyramid fashion.....the base position being the largest....and adding smaller size as the trade moves in my favor....eg 7 + 4 +2 +1, raising the stop so as NEVER to be negative on the origional position and losing the most on the smallest size......Is this the correct way to do it? eg: I have to be "right" on the largest size and the initial call.....that said....I like to always "test the waters" with a 1 lot....just to see how it acts....and to "feel the pain" if I am wrong.