Thursday, September 07, 2006

Statistics

Why does adding to a losing trade does not work for me? I know, it's basic market lore that you never ever add to a losing trade, but...but somehow it works, or not?

Today I had a very deep red day and it was sure enhanced by my adding to two losing trades, which just went way further against me.

In backtesting adding to a losing trade while maintaining the ultimate Stop always shows better results than adding to a winner. And it has of course worked for me as well or I would not try it again and again.

After I closed the losing trades and I had a smaller winner, where I entered directly with full size, I suddenly understood, why - for me - adding to a losing trade does not, can not work.

My statsistics tell me that I have 80% winners vs 20% losers on 810 trades made this year sofar. I add usually at 20 tick intervals and for the last few months that was actually the number of ticks I used as Stop, aka the place where I was convinced that this trade would not work out.

Now what I'm actually doing with the Add-On technique, which I applied today, is adding to a trade which just yesterday I considered a failure. A trade which fell into the 20% loser category and which by all means should have been closed long ago.

So what should I do? Disregard my statsistics, that tell me that Add-Ons actually can improve the overall results or stay firm with my trading technique applied the last months, which showed me very good results and just increase size.

The answer is obvious.Looking at my trade journal and my statistics from an objective perspective the answer can only be: Go in the market full size and handle the trade as you have done the last months.

No comments: