Money Management idea

[trendie]

Just posting out of boredom, but bear with me.........

Imagine a trade set-up where you risk X pips and go for 2X pips.

What if you scale in on a winner??

Take the trade at point P: SL = -Xpips.

If the trade gets to 1X, scale in a new trade.
At 2X, you close out for 3X. (the original trade for 2X, plus the scaled-in for 1X).

What are the trade options:

The trade could go to -1X.

The trade could reach 1X and trigger the second trade.
Now, the options are:

The trade falls back to Point P:
You then close the second trade for -1X, and the original for BE.

The trade goes to 2X:
You close the original trade for 2X, plus the scaled in trade for an additional 1X; ie 3X.

Why am I doing this? I am exploring assymetric risks. That is, instead of winning based on pure pip-counts, I wonder if scaling into a winning trade can mean squeezing more out of a notionally smaller gain. In above example, getting 3X out of a 2X move.
Yes, I know, the wobble could mean lots of 1X losses before it gets to 2X.

 

[meanreversion]

Using this kind of pyramid technique could be effective, however it will lower your overall win rate.

The question I would have for you is, what do you do if you get to within 2-3 pips of your profit target, and then it suddenly starts to move away.. do you sell a little or just wait only for the precise profit target to be met? I think that's more interesting - how does one handle profit targets..

 

[BadgerMatt]

I see the increased upside, but surely you then do serious damage to your r/r ratio - what would have been a break-even trade becomes a losing one.

 

[tomorton]

Thread has a good objective, as exiting well from winning positions is the most difficult skill, and, over time, we all get more winners than losers.

But I just wonder if this has a TA answer, based on probabilities. If TA entry signal S, with an 80% win rate overall, runs out at a 40 pip gain above entry price P 80% of the time (when it is not stopped out at -40), the only exit point is entry + 40. I see the logical answer to make the winning S trades more profitable is to do more S trades (across more markets or more time frames) and make the S trade stake bigger.

 

[meanreversion]

But I just wonder if this has a TA answer, based on probabilities. If TA entry signal S, with an 80% win rate overall, runs out at a 40 pip gain above entry price P 80% of the time (when it is not stopped out at -40), the only exit point is entry + 40. I see the logical answer to make the winning S trades more profitable is to do more S trades (across more markets or more time frames) and make the S trade stake bigger.

A system with a 40 pip s/l and a 40 pip take profit, with a 80% win rate? In your dreams!!

 

[Vaco]

I would do it differently,

If the first trade had a target based on support/resistance/fib extensions/range size/pivots or any other sound reason.

Then my second trade would work in a smaller tf.

For example if my first trades target was R1 then my add on would target the midpoint between R1 and the pp.

In this case you can bag some pips even if your initial target is not hit therefore reducing the impact of the first trade if it is stopped out.

benefits- the trade is going your way when you add to it.

you dont feel the presure to move your stop to be therefore giving your first trade more breathing room.

-by having 2 targets you can take advantage of staying in for larger moves whilst taking chuncks out of the waves as well.