Why not just average down UPRO all the way to zero?

Discussion in 'Trading' started by xif99, May 27, 2010.

  1. xif99


    3x S&P, it moves fast. Just martingale into it as it goes down, but plan things so that you never use up all you money like idiots who martingale in Forex do.

    Adjust your TP after each entry, leave a % as a runner in case you catch the beginning of a trend, you wouldnt want to close your position and then miss a 50% move (like 17% corresponding SPY move) to the upside before a retrace.

    then start over every time price declines a certain % and recalculate your entry prices so you don't use up all your money.

    Why wouldn't this strategy work for long term gains? You know the S&P will always eventually recover, and the martingaling into it lowers your BE point and allows you to profit even if it never gets back up to its previous high levels.
  2. Retief


    Won't work. Position size increases too rapidly when you have a string of losers. You can easily have 7 losers in a row, in which case your position size increases by 2 to the 7 power, or a factor of 128. Try a reverse martingale. You'll have a lot of losers, but when you hit a winning streak, you win really big.
  3. xif99


    I feel like you didn't read my entire post.

    There will be no losers, much less a "string of losers", because you structure your position sizing so that you don't run out of money until UPRO hits 0. So every trade will eventually win.

    It's different from people who arbitrarily martingale into positions and then blow their account when price goes 1 tick too far.
  4. Retief


    You will have losers, because positions will move against you and you are averaging down. If you had no losers, there would be no averaging down.

    Let's see the details. How are you structuring this? What size account are you starting with and what is the initial position size? When are position sizes being increased in accordance with a Martingale progression? And what is the target?
  5. You are a billionaire.
  6. No.Heat


    If the OP uses 0 as maximum risk on an instrument that cannot go to 0 and he uses intelligent money management on the adds he has the start of good strategy, therefore, laughing at the newbies calling the OP one; typical ET acting as maestros when they fall short of even being a student.

    Your problem is a period of long consolidation at the lows after a severe bear market as you could make nothing for an extended period of time but with a little creativity, this also has a solution.

    Not sure why you would want to use UPRO instead of SPY, you can simply adjust size in spy accordingly, unless the dividends affect your strategy.

    Once again, key here is the money and position management.

    Good luck.
  7. xif99


    ok let me clarify. at the end of a closed out position there may be SOME shares within that trade that were sold at a loss, but overall the trade was a winner as a whole, which is why i said no losers.

    thats up to the trader. structure your positions such that you put on your last and final position near the bottom (hypothetically will never happen). target profit can be anywhere you want as long as it's net profit. martingaling lowers the BE point and allows the TP to be close to the most recent position add so price doesnt have to retrace very much to yield a profit. You can do a more aggressve average down if you want to bring the BE and TP even closer to the most recent add to profit from an even smaller move upward. Instead of doubling, maybe triple each position.

    The only way you can fail and close out a trade for a loss (which, admittedly, would blow your account) is if UPRO goes to 0.


    Or would weighted ETF decay prevent this from being profitable?
  8. joe4422


    If you hold until it eventually reaches zero, yes it will work. The problem is if you get your short called in, and possibly at the worst time. If that happened you would book a huge loss.

    You could also short both sides, since they'll both head to zero, and you'll be somewhat hedged.

    But again, the big risk is when you get called in.

    The other idea is to use put options, but just check out how expensive those are. If the volatility in the market dies, you'll lose big.

    Surely, which ever way it's profitable is already being done by Goldman and they'll probably squeeze you out at the worst time.
  9. Retief


    Let's try an example with YM, and for simplicity ignore commissions. Assume YM is trading at 10,000. You buy 1 contract at 10,000, with a target of 10,020, which is a target profit of $100 at $5/point.

    The position goes against you, so at 20 points in the hole, i.e., at 9980, you double your position size to 2 contracts, and adjust your target to 10,000. If your target is hit, you gain $100. The first contract is closed at break even, but the the contract added at 9980 is in the green by 20 points.

    YM keeps going down. When it gets to 9960, you double position size once again and add 2 more contracts to the two that you're already long, and adjust the target to 9980. If you're target is hit, you make $100. You lose $100 on the first contract, break even on the 2nd contract that was added, and gain $200 on the last two contracts that were added.

    YM keeps going down. When it gets to 9940, you double position size again, by adding four more contracts for a total of 8 contracts long, and adjust the target to 9960. If the target is hit, you net $100.

    YM keeps going down, When it gets to 9920, you double position size again, this time to a total of 16 contracts, and adjust the target to 9940. If your target is hit, you make $100. If not, well by now you know the drill, and after only four losers in a row, position size is starting to get a little too big for comfort.
  10. clacy


    Clearly this is apples and oranges compared to the OP's question. He's not talking about doubling his position every time the Dow moves 20 points against him.

    However, your point stands. Maybe a better example would be the Nikkei. It would suck to start averaging in to the Nikkei in 1991. You would still be getting your ass handed to you.
    #10     May 27, 2010