Recently @Jason101 posted in a thread that a good way to maximize profits is to continually build a position during an uptrend over several days until the size is quite large relative to your account size.
http://www.trade2win.com/boards/general-trading-chat/224368-maximum-profit.html#post2922176
I have never really given much thought to pyramiding trades until now since obviously getting in with maximum position size at the earliest point in the trade will maximize the profit potential assuming you get in at near the optimal point. The major flaw with this thinking though is that by doing this, you must set your stop very close to your entry early on, or you must accept very large drawdowns.
So the large entry into a trade early on makes two "common knowledge" money/trade management principles mutually exclusive: the principals of keeping your losses small (can't do that if you give your trade room to breath some) and giving your trade some breathing room (can't do that if you keep your losses small).
Up until now I have just accepted this and tried to find good entry points that would lead to overall higher % winners than losers. I have for the most part failed to find any way to discern with better than a 50/50 chance a good entry point vs a bad entry point. So I started thinking...maybe pyramiding similar to the way @Jason101 suggested can be an answer to this problem.
The basic idea being: start with a small position --> if the trade moves against you, enter once more at a better price --> if trade continues moving against you, exit for small loss. If however the trade moves in your direction, add to it on pullbacks or add to it when price has increased to a point that you have a reasonable profit and can take adverse movement with a larger sized trade.
Certainly not a revolutionary idea, but just something I haven't really given much thought to or investigated much.
I had a bit of time today, so tried my hand at it. I try to avoid discretionary trading like the plague, but I do it on occasion to try new things and see how I react to the new situations so that I can develop systems around them. About half my initial entries resulted in scratch trades or slight losses. The other half however led to excellent profit opportunities, as well as a handful of question.
The main one being --> when do you stop pyramiding? The obvious answer is to stop and exit when the trend breaks. But I am curious if anyone else does this style of trading, how do you decide when to stop? Every adverse movement represents a potential entry point. This trade illustrates a clear failure to capitalize on my large position size due to failing to exit when the trend broke, but it did make me realize the absurdly lucrative potential of doing this. Although my last entry wasn't necessarily bad (probably a bit to large really, but I wouldn't say "bad"), I definitely should have exited the trade faster.
In hindsight the position should have been closed completely at ~ $20.68 since the trend on the 5 minute chart was broken. I waited to long on my exits and closed at ~$20.59 and ~20.49. Still profitable overall, just a small fraction of the potential. But I was able to increase my position size to a fairly absurd (for me) number of shares of 1,500 with very little initial trade risk.
The other two that I took that worked fairly well:
Reason for closing --> I have learned to be extra vigilant as whole numbers approach. It seems a disproportionately large number of trends reverse or level off at these points. I don't have data backing this up, just an observation from the limited amount of discretionary trading I have done. It worked out for this trade.
Started scaling this one back as the whole number approached. I re-entered once it looked like it would trade through the whole number. I don't see any problems with this trade, just probably should have held at the whole number with a tighter stop rather than exiting and re-entering.
So, I am thinking it is time for me to develop an intraday scaling strategy. If I can have these results on a half-assed first attempt at it, surely there is something to it. Does anyone trade in a similar way, and do you have any suggestions? How do you determine when and how much to scale in? Do you scale out or close it all at once? Any suggestions on good times to stop scaling and/or start closing these trades are welcome. Or any other thoughts.
http://www.trade2win.com/boards/general-trading-chat/224368-maximum-profit.html#post2922176
I have never really given much thought to pyramiding trades until now since obviously getting in with maximum position size at the earliest point in the trade will maximize the profit potential assuming you get in at near the optimal point. The major flaw with this thinking though is that by doing this, you must set your stop very close to your entry early on, or you must accept very large drawdowns.
So the large entry into a trade early on makes two "common knowledge" money/trade management principles mutually exclusive: the principals of keeping your losses small (can't do that if you give your trade room to breath some) and giving your trade some breathing room (can't do that if you keep your losses small).
Up until now I have just accepted this and tried to find good entry points that would lead to overall higher % winners than losers. I have for the most part failed to find any way to discern with better than a 50/50 chance a good entry point vs a bad entry point. So I started thinking...maybe pyramiding similar to the way @Jason101 suggested can be an answer to this problem.
The basic idea being: start with a small position --> if the trade moves against you, enter once more at a better price --> if trade continues moving against you, exit for small loss. If however the trade moves in your direction, add to it on pullbacks or add to it when price has increased to a point that you have a reasonable profit and can take adverse movement with a larger sized trade.
Certainly not a revolutionary idea, but just something I haven't really given much thought to or investigated much.
I had a bit of time today, so tried my hand at it. I try to avoid discretionary trading like the plague, but I do it on occasion to try new things and see how I react to the new situations so that I can develop systems around them. About half my initial entries resulted in scratch trades or slight losses. The other half however led to excellent profit opportunities, as well as a handful of question.
The main one being --> when do you stop pyramiding? The obvious answer is to stop and exit when the trend breaks. But I am curious if anyone else does this style of trading, how do you decide when to stop? Every adverse movement represents a potential entry point. This trade illustrates a clear failure to capitalize on my large position size due to failing to exit when the trend broke, but it did make me realize the absurdly lucrative potential of doing this. Although my last entry wasn't necessarily bad (probably a bit to large really, but I wouldn't say "bad"), I definitely should have exited the trade faster.
In hindsight the position should have been closed completely at ~ $20.68 since the trend on the 5 minute chart was broken. I waited to long on my exits and closed at ~$20.59 and ~20.49. Still profitable overall, just a small fraction of the potential. But I was able to increase my position size to a fairly absurd (for me) number of shares of 1,500 with very little initial trade risk.
The other two that I took that worked fairly well:
Reason for closing --> I have learned to be extra vigilant as whole numbers approach. It seems a disproportionately large number of trends reverse or level off at these points. I don't have data backing this up, just an observation from the limited amount of discretionary trading I have done. It worked out for this trade.
Started scaling this one back as the whole number approached. I re-entered once it looked like it would trade through the whole number. I don't see any problems with this trade, just probably should have held at the whole number with a tighter stop rather than exiting and re-entering.
So, I am thinking it is time for me to develop an intraday scaling strategy. If I can have these results on a half-assed first attempt at it, surely there is something to it. Does anyone trade in a similar way, and do you have any suggestions? How do you determine when and how much to scale in? Do you scale out or close it all at once? Any suggestions on good times to stop scaling and/or start closing these trades are welcome. Or any other thoughts.
