Thoughts on Day/Swing Trading Part 2

XRAY27

Well-Known Member
TO ADD or NOT TO ADD

One of the questions which bother traders whether day traders or swing traders is whether they should add to the winning positions or not.The answer is not simple because adding the positions when the market is going in our favour it a good trading practice but it has its own trade-offs. Let us see what are the advantages and disadvantages :

1) Advantages : 1) The main advantage is when we get a strong trend, and we add to our positions, the positions become large without any increase in risk as we add in such a way that the total position after adds are not jeopardised.So in a strong trend the adds can give profits of 5-10 R from 3-4 R price move.

2) Another advantage is as we are adding in the profitable position along with the trend, there is less tendency/temptations of booking profits and taking positions against the ongoing trend.

2) Disadvantages : The main disadvantage is the trader looses small profits.Most of the times markets are sideways and choppy and small profits which has accumalated will vanish if we take adds.

So how does a trader resolve the above dilema ? This issue is more bothersome for daytraders. Swing traders generally get good directional trend moves but daytraders will always feel bad if the small profit accumalated goes away due to add and the trade becomes a breakeven or small profit trade. The solution lies in achieving a balance . I have found that daytraders can take atleast 1 add in sideways/weak trending markets but the moment they sense that the day could be a strong trend day, they must add aggressively and hold till the end as the statistics indicates that the strong trend days close at /near the bottom/top of the day. On strong trend days holding till the end is much profitable than buy/sell during the day In grinding up/down and choppy markets one should avoid adds.

But for taking adds, one should be prepared to fergo some small profits. Adds in swing trading are very profitable when we get a large trend and we have initial position plus 3-4 adds. Adds could be in 1:1:0.5:0.25:0.25 position so that the add quantity is reduced as we go further in the trend.

Traders can practice by starting with one add on a trend day and holding till the end, then increase add positions to 2 and so on...even one add straight-a-way doubles the profits.

Smart_trade
Da !!!!

I beg to differ with your view to add on !!!! and I vote for Not to ADD

Unfortunately adding is indeed a poor idea. Yet at first glance it is seductive. You enter with a small risk and increase the lot size for a winner. Small loss; big win? The stark reality is different.

I've tried for weeks and months to add on a winner. Until I took a pen and a paper and started writing some scenarios and equations. To clearly see the issue you shall think in term of expectancy (average points per trade) and R:R.

Everything would be so great if the price was going in straight line. But it loves going zigzag :D. If it goes in your direction it doesn't mean it will reach your target.

What back testing is telling is big thumbs down for add on, :( best results are for APT high end booking both for intra and swing :yahoo: , as compared to add on..
test is for 4 years of nifty along bank nifty...
 
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amitrandive

Well-Known Member
TO ADD or NOT TO ADD

One of the questions which bother traders whether day traders or swing traders is whether they should add to the winning positions or not.The answer is not simple because adding the positions when the market is going in our favour it a good trading practice but it has its own trade-offs. Let us see what are the advantages and disadvantages :

1) Advantages : 1) The main advantage is when we get a strong trend, and we add to our positions, the positions become large without any increase in risk as we add in such a way that the total position after adds are not jeopardised.So in a strong trend the adds can give profits of 5-10 R from 3-4 R price move.

2) Another advantage is as we are adding in the profitable position along with the trend, there is less tendency/temptations of booking profits and taking positions against the ongoing trend.

2) Disadvantages : The main disadvantage is the trader looses small profits.Most of the times markets are sideways and choppy and small profits which has accumalated will vanish if we take adds.

So how does a trader resolve the above dilema ? This issue is more bothersome for daytraders. Swing traders generally get good directional trend moves but daytraders will always feel bad if the small profit accumalated goes away due to add and the trade becomes a breakeven or small profit trade. The solution lies in achieving a balance . I have found that daytraders can take atleast 1 add in sideways/weak trending markets but the moment they sense that the day could be a strong trend day, they must add aggressively and hold till the end as the statistics indicates that the strong trend days close at /near the bottom/top of the day. On strong trend days holding till the end is much profitable than buy/sell during the day In grinding up/down and choppy markets one should avoid adds.

But for taking adds, one should be prepared to fergo some small profits. Adds in swing trading are very profitable when we get a large trend and we have initial position plus 3-4 adds. Adds could be in 1:1:0.5:0.25:0.25 position so that the add quantity is reduced as we go further in the trend.

Traders can practice by starting with one add on a trend day and holding till the end, then increase add positions to 2 and so on...even one add straight-a-way doubles the profits.

Smart_trade

Adding to your post


Adding is always a dilemma for day traders and also positional traders.

There are some ways with which some people do it, like at a pullback from a moving average or trendline or Swing pivots.

Adding positions is only possible in a trending market.Now the million dollar question is how to know whether it is a trending market?

I guess the only satisfactory answer is when we see it and rue about having missed entries at every step either up or down.


Rules to safely add to winning positions:

  • Pre-determine levels entry for additional units.
  • Calculate your risk with the additional units added.
  • Trail stop loss to keep growing position within comfortable risk parameters.

Posting some images about that , the reading material is too long to be posted , have given the link.

Read more: http://www.babypips.com/school/unde...o-an-open-winning-position.html#ixzz3mFNjTGzp



 
Da !!!!

I beg to differ with your view to add on !!!! and I vote for Not to ADD

Unfortunately adding is indeed a poor idea. Yet at first glance it is seductive. You enter with a small risk and increase the lot size for a winner. Small loss; big win? The stark reality is different.

I've tried for weeks and months to add on a winner. Until I took a pen and a paper and started writing some scenarios and equations. To clearly see the issue you shall think in term of expectancy (average points per trade) and R:R.

Everything would be so great if the price was going in straight line. But it loves going zigzag :D. If it goes in your direction it doesn't mean it will reach your target.

What back testing is telling is big thumbs down for add on, :( best results are for APT high end booking both for intra and swing :yahoo: , as compared to add on..
test is for 4 years of nifty along bank nifty...
My experience is totally different. On a strong trend day I always add and hold the position till the end and it has proved to be profitable for me.On a trend day, the odds of trend continuing uninterrupted are in our favour and the adds work great on such days.Trend trading is always about adding and holding....but the secret is knowing when we are in a strong trend.

But there are as many views about trading as there are traders. So each is entitled to his views.

Thanks for posting your views.


Smart_trade
 
Posting in this thread after a long time.

Market Types - Nontrending or Sideways and Trending.

Any market at any point of time on any timeframe can be classified as Non trending or sideways market and Trending markets.Each type of market requires a different way to trade it.Any trader with sufficient screen and chart experience knows what type of market we are in....let us see how one trades them.

1) Siideways or Nontrending markets.These markets oscillate between the upper range and lower range so the way to trade them is buy near the lower range and sell near the upper range.This could be achieved by trading on VWAP bands,failures of the boundaries breakouts etc.

2) Trending Markets : Trending market could be devided into strongly trending markets like the ones we are having for last couple of days or weak but definite trends which we were having for last few days.

Once we know that we are in weak trends,trading breakouts in such trends will invite more stops being hit...as the trend is weak, the moment we buy a breakout,the market goes up a little and starts its intermittent correction and hits our stoploss if it is kept too low...the correct way to trade is if we are in a weak uptrend,don't buy breakouts...weak uptrend will give 25-30 points correction in Nifty Fut and if we buy here and keep a stoploss of 20 points, there is a good chance that the trade will work and we get into the weak but definite trends......

In strong trends,buying breakouts is a good way of trading but better RR is achieved if you buy a 15-20 ( again taking example of nifty future )points dip and keep stoploss of 20 points below our entry.On a strong trend day we will get shallow corrections so don't wait for deeper corrections..One can also buy 50% on breakouts and 50 % on shallow corrections that if correction does not come we have some position in place.

One day the trend is going to reverse and we will hit our 20 points stoploss but before that we will be riding the trend and put sufficient points in our pocket already. On reversing the trend, we reverse the above process, so instead of buying dips and corrections we look to sell rallies...

If traders follow the above, they don't need fancy softwares,systems .A simple price chart will do and we will have more profitable traders.

The above is no great discovery ,nor it is a rocket science....a simple observations and methods work the best in the markets...

Smart_trade
 
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ravi2126

Well-Known Member
Murthy,

What the market does after the breakout/breakdown is important for trading it. I find following 4 scenarios to be common, I am taking example of the Pivot High breakout :

1) After the breakout the bar closes strongly above the pivot high.....and in subsequent bars continue going up.....this is is clear successful breakout....trade from the long side.

2) After the breakout , the bar closes strong and then the market goes a bit sideways, and continues in the direction of the breakout without closing in the range / below the body high of the Pivot high it broke....then again the breakout is successful...trade from long side.

3) After the breakout the bar closes above the Pivot High...and the next 1-2 bars show that the market is struggling to go up....it makes doji, small bars, long upper tail inverted hammers.....but still closing above the body high of the pivot it broke......then market is unable to go up and the bears get into the action. The bar closes below the body high....short the low of that bar. Your stoploss should be at the swing high......or if trading too aggressively, the high of the bar which closed below the body high.

4) The breakout bar unable to hold and the price retracts and closes below
the body high of the pivot bar......it is failure and short the low of this bar with stoploss at swing or new pivot high.

Smart_trade
ST Da, when ever u get time pls try to post example........
 

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