Averaging down a losing position in a mean reverting situation

[barjon]

Arrgh, forgive me Father Robster for I have sinned.

I could not shake free from the warm pleasures of sleep and did not arrive for my duty until 8:30 of the clock whereupon I longed the venerable ftse since it has a prediliction to change its course at that time. It tried but then appeared to revert to its merry downward path when I took fright because I had not had the time to see where I would make my stand. No matter though, for well laid plans had me hedge it with the mighty dow and I rested content even though ftse did indeed try north as did the mighty dow.

But what is this? The red is flowing like blood on my account. Oh calamity, for I had entered a full position on the mighty dow instead of just a half.

I have traded in haste and unprepared, Father, and for that I seek your foregiveness and blessing.

 

[robster970]

Jon,

These are serious matters you bring to me. Firstly trading requires preparation before engaging. Success will be elusive and probably down to a purely random distribution of wins and losses if you take this approach. As we like to say about ecumenical matters, 'Fail to prepare then prepare to fail'.

However the omnipotent one likes to forgive his flock so consider yourself absolved of your sins Jon.

 

[wackypete2]

"Let he who is without profits cast the first 2 contracts"

Peter

 

[robster970]

"Let he who is without profits cast the first 2 contracts"

Peter

Psalms 88:2 Let my prayer come before thee: incline thine EURUSD unto my cry

Bless you Brother Pete.

 

[MoonRocket]

These are serious matters you bring to me. Firstly trading requires preparation before engaging.

This was my sin Monday night. Saw the gap on the hourly chart and just hit sell
before any mental or chart prep.
Ya' see, normally I would draw lines of the previous H1 opening, high, low and closing
prices on a minute chart.
But nooo! Feeling super irritated I just went for jugular and got smashed, and continued licking my wounds till to-night.
Pretty well made most of it up to-night. :cheesy:

 

[Fintrader]

Psalms 88:2 Let my prayer come before thee: incline thine EURUSD unto my cry

Bless you Brother Pete.

short 87.90 sl 88.50

 

[ChocolateDigestive]

BTW as long as we are talking about the S&P , i asked TradersAudio ( Ben ) about it at an online webinar he said yes sometimes locals at the pit do average down but i don't want listeners to try it ...

of course some locals average down they have got to be nimble but if you can swing 20,000 contracts in a day and you can move the market you are better placed to average down compared to people with a retails account.

 

[ChocolateDigestive]

Look - you had a high volume selling climax there and you sold the end of it.

You have lower than average volume on the day and lower volatility overall since 2012. Playing breakouts is risky at best but when the volume is low and when you have just seen a volume spike to the downside, it's a very low probability trade.

How much further were you expecting that move down to go before the market got temporarily off balance and a pullback occured?

I would concur with that if you are playing a breakout at 10 you need to be getting in at 10 or 9, 8 or 7 is too late. You need to cut it for 3 ticks max loss or take your profit when selling dries up. If you get in at 7 you are just selling to the bigger players who are exiting for profit. which is what you did init.

 

[robster970]

I would concur with that if you are playing a breakout at 10 you need to be getting in at 10 or 9, 8 or 7 is too late. You need to cut it for 3 ticks max loss or take your profit when selling dries up. If you get in at 7 you are just selling to the bigger players who are exiting for profit. which is what you did init.

It was just a poor trade for exactly reasons you highlight. I would normally cut way earlier but I chose to hold because I was struggling to take the loss.

 

[robster970]

So, I went through my trades to see how often I struggle to let the loser go. This seems to have started about 6 months ago and there is on average one trade per month like this, usually towards the end of the month too.

I adjusted the stats for the averaging in trade (there is only one instance of this, described in this thread) so that it reflected the 1356.25 entry and 1356.75 exit (2 tick loss before commissions).

This is the only losing trade of the 5.

The total MAE for all trades was 18.25pts.

The total profit for all trades was also 18pts.

Although 5 trades is hardly a decent sample size, it does demonstrate +ve expectation.

It is only a matter of time though before I get run over on these trades.

 

[robster970]

So, similar circumstances, tried again today, very different behaviour.

a) Took the loss on the first trade (actually, I should have taken a small profit off the table but it just didn't pan out like this today).

b) Had conviction at the 1347 level so entered again - same position size as normal but a much tighter stop to reduce risk and allowing a scaling in or quick bail

c) Let it run a bit but it came back at me - was looking for a break of the low at 44.25 or at least a good test

d) Watched the buyers fail again at 47.50, added in so was running at 2 x normal amount of contracts but carrying normal risk.

e) Bailed at 44.75 when buyers came in again. Looked like the low wasn't going to be tested again.

Net up for the day. Nice advice chaps. Works a treat.

Seems that penance works

 

[VielGeld]

Well, hey, you're taking more shots now. Maybe that's a good thing?

 

[robster970]

Well, hey, you're taking more shots now. Maybe that's a good thing?

You are right. I have broken my 'one shot' rule.

 

[DionysusToast]

So, similar circumstances, tried again today, very different behaviour.

a) Took the loss on the first trade (actually, I should have taken a small profit off the table but it just didn't pan out like this today).

b) Had conviction at the 1347 level so entered again - same position size as normal but a much tighter stop to reduce risk and allowing a scaling in or quick bail

c) Let it run a bit but it came back at me - was looking for a break of the low at 44.25 or at least a good test

d) Watched the buyers fail again at 47.50, added in so was running at 2 x normal amount of contracts but carrying normal risk.

e) Bailed at 44.75 when buyers came in again. Looked like the low wasn't going to be tested again.

Net up for the day. Nice advice chaps. Works a treat.

Seems that penance works

First trade was a bit dodgy in terms of leaving it on. The others were fine. Range day, low volume, sell the top of the range. Even if your first trade you didn't know is WAS the top of the range.

I think you can bugger an alter boy as penance.

 

[DionysusToast]

today was 'orrible for me too.

10:30am watched the market come back to the low. Saw that sellers were not interested in breaking out of the range. Watched it, welched it. Hesitated long enough for it to pop up and go past the point where it would be sane getting in.

Then the phone rang.... by the time I got off the phone we were just shy of 1352... FFS..

So I got long A 1350.75 and it's been oscillating around for an hour or so and I'm about to close it and go to bed for the sum total of $bugger all for the day.

 

[robster970]

First trade was a bit dodgy in terms of leaving it on. The others were fine. Range day, low volume, sell the top of the range. Even if your first trade you didn't know is WAS the top of the range.

I think you can bugger an alter boy as penance.

The first trade really threw me actually. It pushed lower and you can see there was quite a bit of volume came through to take it down to 44.50 area. Normally once it moves 1pt, I let it run a bit further until I see another volume spike or volume just dries up. What I didn't expect was for it to come back like that and then just blow through 45.50 and then within 2 mins hit 47.50. In hindsight I should have covered at 14.54 when it took out 46.25.

Usually once it runs past 3 ticks at these levels of volatility IME, it tends to run further. It hit 5 ticks today and came back. Just can't predict things really can you.

I bugger alter boys after each meal as an aperitif.

51-52 is an interesting level. Ironically, I think I would have come out once it failed to break 52.25 again. NOW would be a good time to exit.

 

[DionysusToast]

thing is - today was a lower than average day for volume or it was until 11am when it suddenly picked up.

This is an indicator I knocked up. I refer to this throughout the day. It shows the volume relative to average for the time of day. This is set to look back 60 or so days. You can see that by 11 AM we were down almost 100k below average, hence the rangey action.

Anyone wants the NinjaScript for this, PM me.

 

[robster970]

I do something similar but I do it in my head oddly enough. I use the volume at 9.30am EST (have people been doing anything sneeky overnight), about lunchtime and then EoD. I pay particular attention to heavy volume in first 30 and last 30 mins of the day too.

1.78m CBAVOL @ 18:20 GMT tells me that it might be an interesting day today, especially as it started off with 460k at the open which felt about average. My theory is that sellers have shut off buying at 51-52 and the 20k +ve delta might disappear before close with a gap close at 41.50 possible.

Or I could be completely wrong and something completely different happen.

e2a - what is tempering this bias to the sell side is that yesterday was v.heavy volume on SP. The commercials were very, very active yesterday and that usually happens at a top or a bottom. I don't think this is a bottom.