Layering In

[on the ledge 10]

Hello, as a new trader (just recently started trading 300 share lots) I was hoping to get some feedback from the pros as to what you look for when layering into positions.

[Tradewinds 12]

Make sure your right. :rofl: But seriously, if you add to your position as you are getting draw down, are you doing it because your set up is still valid, or are you desperate to try to force the trade to work? If your reaction is: :doh:, I made a mistake, how am I going to fix this trade! Then averaging in is probably one of the worst things you can do. If it's a matter of all your signals and your setup still being valid, but you just missed the perfect entry by a little bit, then maybe averaging in is a good idea. But that's the only way averaging in makes any sense to me.

I'm guessing that averaging-in, is often used as a desperation method. So the very first thing that must take place, is to ask yourself what the emotional and psychological motivation is for layering in.

[on the ledge 10]

Tradewinds, thanks for the feedback. So far I have been very disciplined about not averaging down. ( My employer would axe me if I wasn't) What I was referring to (this may not be the correct terminology) was layering into a position. ie: I am going to trade stock xyz and the indicators have shown support at $13.50, rather than placing a 300 share order at 13.50 and risk not getting picked up I would layer my order in for 100 shares at 13.52, .51, and .50 with a .03 stop loss keyed up, ready to punch out of the trade if the stock tanks. Again, I have only been trading for a month and may not be using the correct terminology in this case but would appreciate any more feedback you may have.

[TheNegotiator 13]

First off I use the term as 'scaling' in or out. But also I would say that it is used to increase a position like tw said as it moves favourably in your direction or at predefined entry levels. The premise of buying or selling around a price is not necessarily what I would call scaling a trade. I can see why you would want to do it to get your trade on though. Make sure that it doesn't skew you risk on the total position and that the commissions are not going to be prohibitive. I think in stocks you get charged by the number of trades you do and not by the number of shares you buy and sell total right? I thought it might be useful to mention this as you're probably still sim trading at this point and might not realise. Bad habits are hard to break and in trading, they can cost you big time!!

[zdo 20]

Sounds' like you have too much time on your hands...

 

It's system and mkt condition dependent. A few systems get incremental but significant returns by 'laying in'. You'd have to test it out.

If the instrument you're trading is currently showing lower 'volatility' / movement then it's a good idea to 'layer' inside like you described. If movement is higher, then 'layering' outside may be indicated.

My term for this is 'arraying orders' and I do it with several systems ( and btw, actually do it more for stop losses than for entries). For me, best results for this technique are with mean reversion type systems in conditions of screaming extreme outliers.

[zdo 20]

TradeWinds pretty much nailed it with "Make sure your right. :rofl:"

 

I would also add: Be ready to get up on the wheel and drive it manually.

Attached is an example of ‘layering’ to exit a high leverage hedge in silver last Thu and Fri where the lowest limit was ‘layered’ too far. Squares are buy limit orders ( the ‘layering’). First three triangles are fills. Last triangle (chronologically/on the right) was going to mkt order to make sure all out by weekend (and pink square is cancel of lowest limit order.)