Making better trades

[ShigTA]

Hi there,
I would like to get your thoughts on how I trade, this might be a dangerous thing to do but is there anyone out there who can help me make better trades?

I use line charts with 200MA and 50MA inconjunction with looking for common chart patterns and then I draw support and resistance lines to see if the stock has further to go, up or down.

Bar charts are good for identifying flags, etc. and Candles for exit/reversal patterns.

I use CFDs and Options.

A recent trade I made was with Colt Telecom (CTM), I went long at 72p 40,000 CFdsbecause I thought it was making a BIG ROUND BOTTOM and got out at 82p.

Went long again at 85p 50,000 CFDs and sold some 90p calls.
Got out of the CFDs at 93p and waited for the price to go down to come out of the naked options but of course the price kept on going up. I bought some more (60K) at 100 and sold again at 110 and so gained three lots of profits but yep, kept the naked calls.
Went long again at 111p (40k) but of course the price was exhausted, anyway the price dropped like a stone so the cfds dropped in price but of course so did the options and it all became a bit befuddling.

In the end I gained 14K but lost 4K.

I read an article somewhere about a particular trader who buys more stock when it goes up thereby upping his average but still riding the wave and sells stock if the initial trade goes the wrong way. In your opinion is that a good trade?


I need some help! In more ways than one.

 

[Skimbleshanks]

I read an article somewhere about a particular trader who buys more stock when it goes up thereby upping his average but still riding the wave and sells stock if the initial trade goes the wrong way. In your opinion is that a good trade?

That's called averaging. It's bad. Very bad. Why? If the trade's wrong, it's wrong, so just get out of the trade. No ifs, buts, or anything else - if it's wrong, it's wrong, and no amount of increasing your position is going to make it any better.

Never compound your grief, compound your winners.

 

[CityTrader]

Skimbleshanks is spot on. let one of your trading rules that you develop become " never add to a losing position" AKA " don't throw good money after bad"

 

[barjon]

Funny - I read the quote as pyramiding. If that's what it means it's
not a bad system. ie)

1. enter trade

2. run like a scalded cat if it goes the wrong way

3. if it goes the right way add 1/2 position on continuation signal
(move stop to at least breakeven on whole position)

4. and again on next continuation with stop moved to lock in
overall profit

good trading

jon

 

[Skimbleshanks]

Ahhh ... if it really is pyramiding rather than averaging, then I take back all I said about the trades being wrong.

 

[options]

Must admit Barjon, that's how I read it.
Isn't the written word so open to wrong interpretation of the author's intent?

Anyway, I read that last paragraph as adding to a winning position. Nothing bad there. Jesse Livermore called it 'putting out a line'. He made a million 3 times I think, but then again he went bankrupt twice. Was widely credited (wrongly) to have caused the wall st crash singlehandedly, by short selling when most only knew to trade long. (Investors? not traders), and shot himself in the head while in a rest room of an American hotel. (5 star of course).

But yes, add to a winning position, and chop all holdings when it goes against you. If you can get the last bit right every time, you will be a better trader then Jesse Livermore. Bearing in mind that he considered a rally to be when the market moved around ten points

 

[stevet]

averaging down for a lot of professionaly traders is a key methodology when they understand price and the key methods

hence a lot averaged down with gold as they felt they knew the low support and were content to average down at fixed levels on the way to support - gold never came close to its support level and just took off again

but averaging down is only for trading professionals - not gamblers or those learning tradng

 

[ShigTA]

Thanks everyone for your input.