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Why would anyone average down losses in day-trading when you can get out
quick and know there will be another train along in just a few minutes?
Jerry
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> From: Brian Massey <bnm03@xxxxxxx>
> To: omega-list@xxxxxxxxxx
> Subject: My main man Money...
> Date: Monday, March 16, 1998 9:12 AM
>
> Ok. Let's talk money management. From the sound of it, the money
> management schemes should be more highly prized than actual trading
systems
> since many believe (as do I) that this is just as critical if not more
> critical, than timing.
>
> I'd like to know how some of you determine how many contracts to buy and
> how much to risk on each trade. The old adage of risking only 1-2% of
> capital base is fine if you're trading with $1x10^6 dollars but if
you're
> trading with a relatively small account ($30,000 or so) the only way to
get
> larger is to push it (trade more than 1-2%)
>
> Do you average down? Averaging down, even during the day, makes me
shiver.
> Subconsciously, I can't handle it. So far I've listened to that little
> voice. However, many, many times it would have worked out. If you
> incorporate a few strict rules around an averaging down plan, couldn't it
> work?
>
> Perhaps limiting your averaging down in strong trends when you're buying
> retracements would work over the long haul?
>
> Are there any day traders that like to average down so they can exit
> loosing position gracefully? If so, what are the rules you follow?
>
> Some floor traders will average down as much as twice, each time doubling
> their loosing positions. If it still doesn't work out by then, they cut
it
> all and have lost a bundle. Physiologically this would be hard for me to
> come back from.
>
> As for me, my money management is a mix of science and art. My stop
point
> determines where I get in. The quality of the signal determines how much
I
> risk. For instance I'll give more weight to a solid inverse head and
> shoulders pattern than I will a spike up amidst a hard down. A dead cat
> bounce is a high probability trade so I'll usually load the boat. I'm
> always risking at least 5-10%. Anything less, and I'd have to trade
> Midams.
>
> I have what I think are tight stops. 4-8 points in bonds. 1-2 points in
> SP. This may seem unreasonable to some but I've found that it's easier
for
> me to come back after taking small losses than waiting around for a
loosing
> position to come back. Taking small losses is how all the pit traders
I've
> talked with trade (3 people). It makes sense but is harder than doing
> nothing. I've played the waiting game before. It's hell. I feel stupid
> when I wait for something to come back. This has hurt me more than once.
> I may exit an eventual winning position prematurely with a small loss,
but
> I'm assured of staying in the game. My timing is not so bad that I know
> within the next few trades I'll have a winner or two.
>
> Sometimes I like to stop and reverse. I can't count how many times I
would
> have made back everything I'd lost plus a ton more if I had a consistent
> stop and reverse policy. How do you feel about that? Have any of you
> incorporated this into your methods?
>
> Do any of you out there (position traders mainly) "push" your winners?
How
> important do you feel this is to your success/failure? Some systems call
> for adding to winners in a 3:2:1 fashion. Buy 3 as your base, when the
> market's confirmed your entry, add 2 more, then upon further confirmation
> add 1 more, etc. Has this worked for you? Has it failed?
>
> I think diversity is extremely important. Both technically and
> psychologically. I used to believe that it was better to put all your
eggs
> in one basket so that when you were right, you were really right! But
this
> never seemed to work for me enough. Staying diversified seems to work.
I
> like at least 3 markets in my position trading portfolio.
>
> What are your thoughts on this?
>
> The discussion's open. I will value your feedback.
>
> Thanks,
> Brian.
>
>
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