| rahulprakash |
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| Sunday, April 22, 2007 |
| Friday, July 8, 2011 8:19:47 PM |
6
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QUOTE (funnymony)
if the longer term trend is sideways, then trade, buy and sell, the shorter term price swings.
Yes that makes perfect sense. With fractal nature of charts it would work to keep going down the timeframes if the higher time frames are choppy. I am currently trading 60min charts. Going further down will take me into day trading. With a full time job, I will not be able to pull that off. I should look into the possibility though...
Rahul
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QUOTE (funnymony)
then why not just swing trade the market?
Not sure what you mean here. Can you please elaborate.
I am trying to capture the swings. Many times it does seem like next swing has started but follow through does not happen because the market isn't trending. And I get stopped out. I am trying to find a way to lose less when this happens and win more when the follow through actually does happen.
Rahul
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QUOTE (funnymony) what would be the purpose of scaling in?
why not just buy it if you think its going up?
funnymony: Yep, I would buy it if I think it was going up and was certain of it. Extension of your question can also be - "why not just go in with 100% equity if you think its going up? The fact of the matter is I DON'T. Yes, I think that probabilities are high, but I don't really know. So, with scaling in I am trying to load up only when market action is indicating that I am on the right track.
QUOTE (diceman)
Logic would dictate larger buys at the beginning.
(300 shares, then 200, then 100 and so on)
That would be true under the assumption that I have a very high number of scale in points such that it ends up that I am still buying shares while the trend is exhausting itself. It will work only if I can find a method to load up quickly enough, with possibly 2-3 scale ins. Scaling in has to be complete when the price movement is showing reasonable signs that the trend is indeed underway (of course it can always turn back...but then we are always talking probabilities)
To give everyone some context of why I am trying to do this: As I see it, markets chop around/base/consolidate more than they they trend. Whatever that ratio is - I have somewhere read Conslidate:Trend::70%:30%. I am currently trading pullbacks in trends. Now the picks I make will show high probability based on the pattern. And in line with sector movement. But then, all stock picks are at the mercy of market sentiment and direction. So my picks will have a high tendency of stopping out during choppy markets (like the last two months). And they will work really well in trending markets. Now it can be argued that why don't I just sit on the sidelines while the market is chopping around? The problem with sitting around is that I don't know when the market will start moving and in which direction once the consolidation is over. So, I end up getting back to the market when it is beginning to start consolidating again. If the trend is longer, then I might get some towards the end.
So, I have to come to a money managemnet solution that keeps me losing small when I am losing and has me all in when things are working. There are a cople of ways that I can think of to tackle this:
1) scaling in: Let the stock tell me if it is indeed going my way (with or without the help of the market). This will keep me light while losing but heavy when winning. I will end up with not a very attractive winning trade/losing trades, but the overall expectancy will go up.
2) Risk lower % of equity during choppy markets: So, if I normally risk 1% of equity per trade, then during choppy times I reduce it to say 0.5%. That should also have same effect on expectency by keeping impact of losses lower and impact of winners higher.
The intent of this post was to explore the 1st option. I would like to thank everyone for their ideas and critiques. Keep 'em coming :)
Please read Worden Notes for 6/23 to see how scaling in has worked for Sir Eight (and a half) Fortunes. That should help clarify the concept. I am quite sold to the idea (which most of you are critiquing) and am looking to find a method to implement it (to which Diceman has provided good leads, Thank you sir)
Thanks,
Rahul
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Thanks for the link and your input.
Rahul
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Thanks Diceman. That is very helpful.
Any thoughts on ratio of size of shares to be scaled in with?
I was thinking if I use 2 scale ins and 2 scale outs with 50% of position size at each, then I am effectively opeing and closing two different positions at different points. I am guessing it would make more sens to front load the scale in i.e. more shares at subsequent entries. Maybe 30% at first entry and 70% at second scale in entry. And same for scale out...
Thanks,
Rahul
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Hello traders,
I am trying to build in a method for scaling into my entries. From a money management perspective it makes a lot of sense. However, i am stumped as to deciding the logic to decide the scale in points. If any traders are successfully (I noticed fpetry mentioned he does in another post) using scaling in, I would really appreciate it if they can provide any pointers or literature to reference. FWIW, I am trying this on a trend following system using hourly charts.
Thanks
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