Thursday, September 25, 2008

Strategy

Adding at a profit, yes, that's how it's done. You scale into a profitable trade.

You remember the last time you did it successfully?

In daytrading it just is difficult to do, as you enter at highs for longs or lows for shorts usually, which brings the potential profits down, while risk goes up, as your average entry price for your position moves nearer to the current price.

Nonetheless, I tried it today and as I know you love proof for real trades, here are my FTSE trades:

Globetrader-224

I took a long after the open and added 3 minutes later. The high of the move was 5139 and then the FTSE sold off to a low at 5100. I added at 5113.5, a contract which was sold at a loss at 5108.5. Then an unexpected meeting came up and I had to leave the computer. I set 2 stops at 5114.5 and 5106 each and left the desk for 1h. Coming back I saw that the DAX had rallied and FTSE was still struggling below 5140. I added at 5140 and closed the position into the spike at 5149.5 and 5154.

My initial idea was long 5130.5, add 5115.5 and 5100.5, but that idea of adding at a profit popped in my head, so I added at 5136 instead. Instead of a position average at 5115.5 I was long 2c at an average of 5133.5 with the same clear position stop below 5090. Stupid!

Next comes 5139 trading with the DAX going up, but me refusing to move the position stop, as I saw a good long bias in the European markets with the EOE trading nicely up. The EOE V8-FTA is the Dutch futures contract, which includes mainly banks and insurance companies and in this environment is a contract you want to watch, as it reacts most sensitive to any bailout rumors. So I had a long bias and was willing to give the trade room.

Add-on's I usually trade not in front of the market but by a trailed StopLimit order where I'm taken in, when the market turns. 5113.5 was a tick to narrow and I exited that contract at a small loss, which moved my position average to 5136.

FTSE bounced from 5100, with the DAX and EOE making new daily highs. Still the seller at 5128 was not gone and I suddenly saw myself confronted with a meeting I had not anticipated.

Globetrader_71

I had to decide what to do...Closing the position at a loss of more than 200 Pound..Don't like that...especially, when I still had the long bias confirmed by the trading in the DAX and EOE (ES was treading water around 1191)...leaving the position open with a Stop at 5090...too far away as while I sure like to trade double bottoms, the retest of the 5100 would have been the forth test of that level within 36 hours. NO if we go down there, we break it...see that 60min chart for that..

Globetrader_72

So I put the stops at 5114.5 and 5106, which would have been a bad loss if both were to be hit, but then I was sure I would see FTSE go well down below the 5100 mark and that is what stops are for...Protect the account, if things don't work out.

Coming back at 10:50 I saw my stop at 5114.5 had been a bit too high as we had based at the 5112.5 level and finally the up bias took over...

Globetrader_73

The position average was now 5154.5 with 1 contract still long. Just great...yes there was potential for a good upmove, but there was also a lot of overhead:

Globetrader_74

5139 was the daily high, EOE and DAX had made real good upmoves already and were trading at daily highs...Add-on at 5140...traded and being long 2c again the position average was now 5147.5. Good, at least below that 5150 resistance.

Chart was long, better entry would have been 5135, but that - on the other hand - would have been too near to the daily high, to be a good entry long, so the new DH was as good as any other entry.

Globetrader_75

Price stalled at the 5150 level and as the trade was already open for such a long time plus had been considerably down I took 1 off at 5149.5

Globetrader_77

More stalling above 5150, which let me exit the trade at 5154 to settle in again after my meeting.

Globetrader_78

I missed that nice bounce from support for a new long writing this article instead...

Globetrader_80

Adding at a profit got me.... a total of 12.8 points minus commissions or 56.76 Pound. Sure not worth the risks I took.

Let's look at the initial plan instead, which I abandoned in favor of adding at a profit.

This was the situation I was looking at this morning:

Globetrader_81

Lower highs with support at the 5110-5090 level. If that support broke I would not want to be long, so Stops at 5090 for a position trade were fine.

Initial trading gave me support for that long at 5130.5, target for that trade 5151, stop 5090 with add-on's at 5115.5 and 5100.5

Globetrader_82

Risk in that trade: 153 ticks or 765 Pound
Potential: Without add-on: 205 Pound, one add-on: 560 Pound, two add-on's: 1065 Pound

The trade idea would have done quite well, abandoning the plan got me 56.76 Pound while taking risks of more than 600 Pounds at the low of the trade. Sure at the low this plan would have been down 230 Pound as well, but 230 Pound compared to more than 600 Pound down. I know which plan I prefer.

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