30 replies to this topic

[OEXCHAOS]

Another thing you'll want to do is use some sort of appropriate trend indicator. Markets that move against trend tend to snap back--a good time to double up. When the trend changes, I say snug your stop and prepare to lick your wounds. Also, one other time to consider a doubling down strategy is in a severely oversold market. When things get excessive, you know that somewhere along the way, you're pretty darned likely to get a big sharp rally. If you keep buying, chances are, you're going to get bailed out, if only by short-covering. I'll tell you, though, you want to be patient with that counter-trend approach. Wait for things to get REALLY ugly, and make sure you give yourself enough time to be right. Mark

[Chilidawgz]

Never add to a losing position. A losing position means you were wrong. Jesse Livermore

[PorkLoin]

CenterStageBob,

I think Mark is right on with his trend indicator suggestion. You want the larger, prevailing trend on your side, and if it's not that way, you had best be objectively taken out of the market or pass on the trade.

Lots of good points have been made here. I think you indeed have to control your risk, and if the NDX being down 10% means you're risking 60% of your account, then that's no good. Some would say risk no more than 2%. Personally, I'm a "selective plunger," and I'd go 6% or 8%, sometimes, but also would couple it with a strategy to add to your position as the market moves in your favor.

Not pyramiding, but perhaps something like adding half your original position when the market goes in your favor, twice or three times its normal daily range above your entry, or just picking a percentage as with the downside rules. Add more as the market goes your way.

Let's say we've been in a bull market, and your trend indicators say it's still a bull, though we're getting a pullback. I'd look for chart patterns -- three-wave moves down, bear flags, pennants, "failure swings," etc., and look for Fibonacci retracements as well.

If the NDX has just made a 100 point move up, then for it to go back down 38, 50, or 62 points would be in line with how markets work, quite often, and if we get down 60, for example's sake, and that's where the 5% level is, then great -- a reversal upwards from that area would be expected anyway, per Fibonacci.

The 5% and 10% levels would rarely match up well though, IMO, and I wouldn't go with those percentages, necessarily. I'd go with the Fibonacci retracements in the beginning. If we went up 100, and the market goes down 38 and turns higher, buy (especially if we declined in three waves or if the market looks like it traced out a corrective move down). I'd be willing to add longs at down 50 and even at down 62, as long as our hard science/mathematics trend indicator still says "bull."

If we go as low as down 62 and we're buying, I'd have a hard stop at down 68 or so. Might even buy at down 79, too, with all the above caveats (78.6% is another Fibonacci ratio) with a stop at ~ down 82. Selling the DJIA after a 78.6% rally, compared to a prior decline, has been fantastic since the 2000 top.

I don't know if historically the NDX tends to turn around after declines of 5% and 10%, so I favor the Fibo ratios of prior moves, not percentages of market value. I've seen the ratios work countless times.

Okay, enough.

Best,

Doug

[bobalou]

How would it work if you went short from 74/82 low?or long on nsda from 5000???.You need time #1 killer ,,trin and alot of $$$$ can save you.balls help.But;who needs the pressure.

[BlissBull]

"scaling in" (averaging down) is one thing, "doubling down" is another! If planned from the outset, "scaling in" is fine, but "doubling down" is not. At least that has been my experience.

[HoseB]

TS,

You made some great points.  I really like the idea of waiting for a reversal before buying back in, that's a great idea.  I'm going to see if I can modify the system and only buy after an x% reversal (say 1 or 2%). 

SSB

Contrary... I offer the opinion that conventional wisdom about "not trying to pick tops and bottoms" is wrong.

If you play for tops/bottoms, you at least know quickly whether your trade is probably wrong. Stop out, no averaging against.

"I made 10 times more money trying to pick tops and bottoms than I ever did NOT trying to pick tops and bottoms" --- Paul Tudor Jones

(I too, as a matter of fact)

Hose

[TechSkeptic]

Hose, I don't have anything against picking tops and bottoms if it works for you. Waiting for a reversal can increase your odds of success, but at the expense of a good chunk of the price move - it's always a tradeoff! But no matter which way, I agree with you completely about stopping out rather than averaging against. Good trading, TS.

[HoseB]

Hose, I don't have anything against picking tops and bottoms if it works for you.  Waiting for a reversal can increase your odds of success, but at the expense of a good chunk of the price move - it's always a tradeoff!  But no matter which way, I agree with you completely about stopping out rather than averaging against.  Good trading, TS.

IF you are going to try to pick tops and bottoms, you need to be right on top of the action as best you can.

Many traders want to wait for "confirmation" of the turn. I would argue that there is not such thing as confirmation.

[TechSkeptic]

Hose, I agree there is never any guaranteed confirmation. And often when confirmation comes, it's right about the time that the move runs out of steam. But entering with a stop above market (for long) or below market (for short) at least means that there is some momentum on your side (even if it's running out). Either way, you have to be on top of it. I don't think there is any right answer, it's really the age-old debate of momentum vs. value. Whatever works for you... I know that you're a much more experienced trader than I am, so I'm certainly not going to argue against anyone's proven method.

[HoseB]

It sounds like your understanding is pretty good, TS. The most difficult aspect to trading is distilling all of the information, concepts, and beliefs down into something workable. In the end, the succussful trader must a. Take sensible risks b. Try to make SIGNIFICANT gains when given the chance. (Many traders scalp out of a 80 point move after 5-10 points or so.) c. Exercise rigorous stop discipline. Sounds easy, but you know it isn't. Hose