Trading Around a Position

[RobinHood 10]

A combination of scalping and position trading. I would always have an idea — a basic position — and then I’d trade around it. I still trade like that, even though I don’t have quite as much time as I used for scalping.

Harris Brumfield

 

I've heard of a few traders who would initiate a position and then scalp around it, including I think Stevie Cohen and Yra Harris.

 

What are they doing? e.g. long 10,000 contracts they will not go net short when scalping, but just reduce or increase their position size?

 

e.g. Harris is long 1,000 T-bond futures and he sees a downside scalp opportunity. He will then reduce his longer term position by 100 contracts.

Is that it?

[Guest forsearch]

Two accounts. One for long-term core positions, like the 10K contracts you noted. Then another for short-term scalp position, to take a 100 car opportunity as he sees it.

[zdo 20]

Yes.

 

In futures, I use two accounts - one for shorts and one for longs to facilitate these kinds of tactics. Prevents a lot of confusion

 

In fx, you have much more sizing flexibilty so lifting part of a position for a scalp works just fine. Actually did one on ~10% of EJ position this morning...

 

Beginners beware though - these kinds of maneuvers and multiple accounts and etc. can fuel costly delusions :helloooo:

[Guest forsearch]

Keep in mind that there are all sorts of rules and regulations in the futures markets about this sort of activity. The powers that be want to make sure that you're effectively not trading with yourself on the same contract and month (using one account to buy and then closing out that trade with another on the other account, if that makes sense).

 

One-lot pikers with $5K are discouraged from these sorts of setups, as brokers are loath to do this unless your account size is at least $25K.

 

You'll have to execute yet another piece of paperwork with your futures broker to set this up; usually a mere formality via fax stating that you are aware of the various NFA/CFTC rules regarding trading activity, blah blah blah....

 

-fs

[GammaJammer 10]

In FX, most professional wholesale (i.e. bank, hedge fund or similar) prop traders will do this. It's called 'jobbing' around your position, and usually the aim is to improve the overall average entry point of your core position to a point where even if you get stopped out eventually you're still banking some P+L.

 

Plus some people who trade breakouts like to only put a portion of their positoin on at the inception of the breakout, adding and subtracting until it's clear that the break is genuine. Because lets face it, picking direction these days is the easy part compared to actually nailing the timing down

 

GJ

[BlowFish 10]

Another practical example - lets say price is trending up and then moves into a nice boxy range from which you anticipate continuation. Ratherthan wait for a breakout you can chip away buying 2units at the bottom of the range and selling 1unit at the top. This technique can be used to build a larger position than if you had gone all in. You can use the profit from all these scalps to offset the risk on the remainder you are holding.

[RobinHood 10]

Thanks guys, very interesting.

 

I would assume that the type of players doing this are those technically capable, i.e. someone making longer-term bets based on fundamentals but also experienced with technical price action and capturing short term movements. Or if it is in a larger institution they have teams of people specializing in this? One group makes the longer-term calls another jobs around the position.

[GammaJammer 10]

Dont fall into the trap of thinking that everyone either trades fundamentally or technically, and even those who do both will keep the two apart. For a start many people will trade flow, positioning, context etc etc.

 

Secondly one can trade shorter term fundamentals as well - the ebb and flow of rate expectations, that sort of thing. This stuff is rarely as black and white as it's painted on these kinds of forums in the real world.

 

GJ

[darthtrader2.0 10]

You can use the profit from all these scalps to offset the risk on the remainder you are holding.

 

Good stuff, I'm not really sure it matters to think much about what the huge banks are doing as far as stuff like this goes. If you know about it, they are probly doing it and then some.

I'm not at the level of capital yet or skill with my single strategy that I have to bother thinking much along these lines but I do think you can gain some utility from thinking about this stuff from an autotrading standpoint. The value ultimately would come from a probabilistic sense of that if you have 2 different strategies with positive expectancy, if they are both trading against eachother you will get a hedging effect as far as risk goes, then when they are both on the wrong side that situation will be less costly than the magnifying effect the 2 strategies will have when both on the winning side.

While I hate elitetrader, if you read all of Acrary's posts there is a goldmine of information on this kind of thing.

I'm not sure it makes alot of sense though to be putting on 2 strategies until you have mastered one. I mean if you have any advantage starting out its ultra pure liquidity. You would probly be better off using various entry/exit methods on a single strategy than viewing one strategy as a core and then another strategy against it.

[zdo 20]

... The value ultimately would come from a probabilistic sense of that if you have 2 different strategies with positive expectancy, if they are both trading against eachother you will get a hedging effect as far as risk goes, then when they are both on the wrong side that situation will be less costly than the magnifying effect the 2 strategies will have when both on the winning side.

...You would probly be better off using various entry/exit methods on a single strategy than viewing one strategy as a core and then another strategy against it.

 

Darth, et al,

Correct me if I’m wrong, but I think the original post / question was making the differentiation on time frame / holding period. For example, for long time frame position trading I do seasonals and I always go home net the core position (unless I’m being stupid or get an extremely lucky intraday parabolic move). But intraday, when conditions are right, I may lift or offset part of a position to hopefully build a better cushion for the core seasonal trade. (In fact, needing to build the cushions and needing to rescue some positions was why I ‘learned’ shorter time frame trading in the first place. It takes less than zero brains to be a seasonal trader... just put on the position on the right date, then put the monkey in restraints until it's time to take the position off...)

 

With a ‘portfolio’ of multiple systems (correlated or not), the issue is the sizing of each individual system – which I think is beyond the scope of this topic.

Btw, does anyone have any articles or references on sizing in a ‘portfolio’ of strategies – I haven’t seen much on that topic… If anyone has anything on it please open a thread. Thanks.

 

Have a great weekend all