[jperl]

Originally Posted by brownsfan019 »

Good point IS, but here are some things to consider under that strategy:

1) You are hoping the position GOES AGAINST you, so you can get a better price, but not too much so your stop is not endangered... Seems counter-productive to me - you want to lose initially, but not too much.

I think there is some confusion here about the difference between scaling in vs. averaging down. They are not the same thing. In averaging down, you load up the boat on your first entry. Let say you are comfortable trading a max of 8 contracts with a loss of 5 pts/contract or 40 pts. If the market moves against you, you then overload the boat above your 5 pt stop increasing your load to 16 contracts. If the market continues to move against you, you are now in deep doodoo. You are trading beyond your comfort range. You can't stand the possibility of taking a loss so you add more contracts and you are really sweating it. But of course the market continues its relentless pursuit against you. Eventually you lose a bundle. This is what averaging down is all about.

Now consider scaling in.
Let say you are normally comfortable trading no more than 8 contracts with a stop loss of 5 points, 40 pts total . At entry however, you only trade 4. Reason- you think you may have to scale in. The market moves against you 5 pts. Your down 20 pts., so you are not uncomfortable (remember your risk tolerance is 40 pts). You reconsider the trade. If it still has possibilities on the long side, you load the boat. Loading the boat means adding 4 more contracts. The market could drop another 2.5 pts. before you would be out 40 pts total (4x7.5 +4x 2.5=40). But interestingly enough, the market only has to revert 2.5 pts to the upside, for you to break even. So in reconsidering the trade at the 5 pt down entry, you have to decide whether the probability for the market going up 2.5 pts is greater than the probability for it going down 2.5 pts. If it is not, don't scale in. If it is, pull the trigger.

The difference then between scaling in vs. averaging downs has to do with planning and an understanding of your risk tolerance. Scaling in is not a helter skelter event which averaging down is. You should always be undertrading, in the event that scaling in or reversing becomes a necessity.

As an aside, every day trader should have scaling in as one of his or her strategies. And in addition, every day trader needs to learn how to reverse a trade when the situation warrants.
JERRY

[brownsfan019]

Jerry - good points. The initial topic was to discuss scaling in and it looks like Sharp brought up averaging down. I'm with you - I think averaging down is a loser's game over time.

But to say that everyone needs to scale in I think is incorrect, as I've demonstrated in this thread. You mention that traders need to be able to reverse, and we agree there, but to scale in and be able to reverse quickly is not one in the same. As I mentioned above, the numbers can get skewed quickly if you scale in AND reverse when necessary.

[Dogpile]

just thought I would add my current thinking:

I do like going in on 2 trades rather than 1 --- scaling in...

I always use 'buy-market'/'sell-market' on stops for ENTRY (sends a market order if it trades at my 'trigger price').... so this makes this clean when your order is sent during a buy or sell program that is executing. 'joining in' on this with a stop-market is a beautiful thing..... I am generally playing for a profit goal of just a few points...

so for example,

say I have staggered 2 different 'short-market' orders on NQ at 1960.00 and 1959.00... say they are each for 5 contracts each...

now the market fills the first one at 1960.00 -- I instantly put a 'buy to cover' limit order for 5 contracts at 1957.50. why?

because it will fill my other order at 1959.00 and give me 'exposure' of 10 contracts at that point. I will be averaged in at 59.50 and general scalping target is 3 points (1956.50)...

so my real risk is that the market fills all my orders and instantly reverses between 57.50 and 59.00...

if my first order is a bad trade, I am somewhat unlikely to fill on the 2nd part of the order without also filling the buytocover limit order given the small distance from the 2nd entry to the first exit point.

if my order is a good trade, I will fill on both and might make my first profit within a minute or two of the second entry... this fill reduces risk exponentially.

many times, I will take my second position and manage the exit on a discretionary basis. I might watch the first push and move down my stop to the top of the 3-minute bar that the entry triggered. good trades tend to work right away while bad trades tend to reverse right away --- so I have found this to be effective. your worst analysis of the market will tend to fill only on the first order.

one other scaling in method is simply using signals that are similar but on different contracts (ie YM)-- and use a similar style to exit... get out of the first entry relatively quickly after the second entry 'triggers'...

futures have so much leverage that it is important to control your risk tightly... I find that having multiple orders out (say 4 orders across 2 different contracts) is a really nice way to control risk when you begin trading bigger size and the dollar values get big... you only need a couple of points a day with size to make a living...

[BlowFish]

Hows this for a technique :- lets assume the Russel is in a reasonable tight range and you are anticipating a move down out of it.

Sell 2 units at the top of the range and cover 1 at the bottom lets say at +1.2 for arguments sake Move stop to -1. If price approaches the top of the range sell 2 more and rinse and repeat.

I have not used this technique for a while but it is possible to build a large multiple position that is essentially risk free (if you count the whole exercise as a single trade). long tight boxy ranges are good for this.

[malverd]

Jerry,

I know you mention that PVP is used as a stop loss point.

Let's assume a long position. Say your risk tolerance would allow you to place your exit point below the PVP.

If price closes below the PVP, but hasn't hit your risk tolerance stop AND the PVP point hasn't changed, should you stay in the trade?

[malverd]

Jerry,

I haven't seen you mention the following scenario:

For long:

The VWAP is above the PVP and lower SD1, SD2, etc. is also above the PVP.

I know you mention bounces off of the upper SD1 and VWAP are high probability trades.

But I watched you video on the symmetrical YM trade and obviously price was not above VWAP on that trade.

Would it be a high probability trade to take bounces off of the lower SD1 and SD2?. I realize that price is not above VWAP.

Also in that YM trade, you mentioned that you were using no stop loss. I assume that you were using a “stop” based on your full risk tolerance. If the trade had not worked out and the VWAP went below PVP, would you have exited the trade immediately?

Thanks

[Tradewinds]

Originally Posted by BlowFish »

Hows this for a technique :- lets assume the Russel is in a reasonable tight range and you are anticipating a move down out of it.

Sell 2 units at the top of the range and cover 1 at the bottom lets say at +1.2 for arguments sake Move stop to -1. If price approaches the top of the range sell 2 more and rinse and repeat.

I have not used this technique for a while but it is possible to build a large multiple position that is essentially risk free (if you count the whole exercise as a single trade). long tight boxy ranges are good for this.

So, the reason it is "Risk Free", is because you took profit, and even if subsequent orders went to a loss, the original profit covers the loss. The real issue is identifying the "long, tight, boxy range". There needs to be a way to anticipate and verify that price pattern. I think this strategy would be excellent for a sideways market with a downward bias.

No matter what strategy is being employed, there needs to be some underlying basis for the application.

[Tradewinds]

Two questions:

• What percentage of the time is the entry price being misjudged by an amount that would warrant the scaling in?
• Are you good at judging the direction the market will go in, but not be so good at getting the entry price right?

I'm wondering if the answer to those two questions determines whether averaging in might make any sense or not.

It might be possible to be good a judging the direction the market will go in, but not be so good at getting the entry price right.

My opinion is, that averaging in, is making the assumption, that the optimum entry point is often misjudged. If the optimum entry point was rarely misjudged, then averaging in would be counter productive. If you were real good at picking the entry price, and tried to average in, not all the orders would fill. Unless you intentionally picked bad entry prices. That wouldn't make any sense.

So my first question would be, "What percentage of the time is the entry price being misjudged by an amount that would warrant the scaling in?"

In post #4 you stated:
"Looks like it's back to the simple method here."

So I'm assuming that you gave up on this idea.

And in post #2 you brought up the point about how the exit orders fill, as opposed to the entries. It seems you were trying to both average in, AND scale out. If you averaged in, but then took profit on ALL the orders at the FIRST opportunity, that would eliminate the problem of having the order go against you with to many orders in the market.

But no matter what the strategy, it will always come down to how well we are reading the market and anticipating what it will do.

Again, the temptation is to average in because the entry is being misjudged. If the entry is being misjudged more than not, then averaging in might compound the mistake. It could make things even worse. I suppose it might be possible to be good at judging the direction the market will go in, but not be so good at getting the entry price right. That's not to bad a situation to be in.

If the entry is being anticipated well more often than not, then averaging in on the good entries either gives you worse prices than you could have gotten, or minimizes the size of the entry. Either way, potential is being hurt. So that doesn't make any sense.

If you are real good at judging what direction the market will go in, but not so great at picking a good entry price, then averaging in, would probably be good. Instead of 3 orders at 3 different levels, I would consider entering 2 orders, the smaller order at the least good entry, and the second, bigger order at a really good price. So 1 entry of 1 and a second entry of 2 contracts. Instead of 3 entries of 1 contract.

From experience, when I misjudge the entry price, it probably means that I misjudged what the trend was going to do. In that case, averaging in, just makes things even worse. So my gut feeling is, that even in the best case scenario, "averaging in" is tricky.