Position Management Strategies

[sds 10]

Position Management plays an important in the successful trading.

Still, you visit any trading related forum, you get least information/discussion regarding this topic.

This forum is already helping me out in understanding market dynamics.

 

I think, its not a bad idea to learn about position management from experienced traders out here.

 

Please educate me with regard to position management.

[walterw 10]

sds : it depends if you trade 1 contract or multiple contracts, to start I would say its ideal to trade multicontracts, at least a minimum of 3 contracts so you can exit gradually your trade.... here at TL there are very diferent ways we trade in terms of RRR money managment, you want to hear all the bells and see what fits your style.... cheers Walter.

[TinGull 10]

I will attest to trading a single car vs multiple cars. Basically, my story is such. I started day trading after realizing I wasnt the kind of guy that liked holding a position overnight. When I started, I said...I will trade 1 car until I felt comfortable, then trade 2.

 

That was about 6 months ago. Then, one of the board members (actually a few) taught me about the wonderful thing that is trading with multi-contracts. Money Management starts to become amazingly wonderful, and if I had done this from the get go...then I'd have saved a LOT of cash on losing positions.

 

This is how I do it right now. After 5 YM points, I cut one car off and move my stop to breakeven - 5. Now I'm in a scratch trade at the worst. Then, my other I will take off at +10 if the market conditions warrant that, or I will take it off at +15. Many of my ultimate 10 point losses in the past would have been avoided had I used this strategy.

[brownsfan019 17]

sds - I trade multiple contracts, but simply to get the returns that I am looking for. With that being said, I used to do something like Tin illustrated for us here, but after a real hard look at arbitrary fixed profit levels, I am focusing my efforts on exiting based on 'what the market is telling you' vs. holding and hoping... I started a thread here in case you did not see it - http://www.traderslaboratory.com/forums/f34/wide-range-bodies-big-candles-1480.html

 

I have found that having set profit levels out there is great when they are hit, but you really can 2nd guess yourself when they are almost hit. For example, I remember a trade that was last week or the week before on the YM. My profit target was at +20 based on the strategy being used at that time. It was a short and looked great! The move went exactly 19 points and not one more. My order was just sitting there - an MIT order actually. It just had to move one more point and I was out with a nice trade. Well, that one more point never happened... Talk about kicking yourself in the ass over that...

[sds 10]

  brownsfan019 said:

sds - I trade multiple contracts, but simply to get the returns that I am looking for. With that being said, I used to do something like Tin illustrated for us here, but after a real hard look at arbitrary fixed profit levels, I am focusing my efforts on exiting based on 'what the market is telling you' vs. holding and hoping... I started a thread here in case you did not see it - http://www.traderslaboratory.com/forums/f34/wide-range-bodies-big-candles-1480.html

 

I have found that having set profit levels out there is great when they are hit, but you really can 2nd guess yourself when they are almost hit. For example, I remember a trade that was last week or the week before on the YM. My profit target was at +20 based on the strategy being used at that time. It was a short and looked great! The move went exactly 19 points and not one more. My order was just sitting there - an MIT order actually. It just had to move one more point and I was out with a nice trade. Well, that one more point never happened... Talk about kicking yourself in the ass over that...

 

I am following the thread " Wide Range Bodies or 'big' candles " started by you. (very nice thread, thanks.)

 

I have read nearly all the posts those you had posted. Based on that what I feel

is that you have an exit strategy that is perfect for you.

 

The idea behind this thread is not to find the best position management

strategy, but to know the different position management strategies that traders are

applying (preferably with the type of trading style).

 

based on the style of trading and personal comfort, a person can

 

- Exit all of the positions at once.

- Exit partly and then with trail stop.

- Go on adding up position by keeping risk the same.

 

Again the entire thing depends on the person and his comfort level.

 

In my case,

 

I do not fear of holding the position overnight. Because I am risking the money

which I am comfortable to loose (which does not affect me financially and

psychologically).

 

Based on this statement, initially I used to trade single contract. Then I

started trading multiple contracts.

 

Brownsfan019, Read your example of +20 target.

 

Based on my psychology:

 

e.g. I am long at certain contract.

 

My feeling is, after +19 if market is telling (giving a clearcut signal) that it will no

may not go on in my favour, then I will liquidate half the position and move the stop to breakeven.

 

If any signs/patterns do not suggest the downmove, but still not moving in the direction of my favour, I will move the stop to breakeven.

 

What I want to see is the balance of fear and greed.

 

sds.

[sds 10]

  TinGull said:

I will attest to trading a single car vs multiple cars. Basically, my story is such. I started day trading after realizing I wasnt the kind of guy that liked holding a position overnight. When I started, I said...I will trade 1 car until I felt comfortable, then trade 2.

 

That was about 6 months ago. Then, one of the board members (actually a few) taught me about the wonderful thing that is trading with multi-contracts. Money Management starts to become amazingly wonderful, and if I had done this from the get go...then I'd have saved a LOT of cash on losing positions.

 

This is how I do it right now. After 5 YM points, I cut one car off and move my stop to breakeven - 5. Now I'm in a scratch trade at the worst. Then, my other I will take off at +10 if the market conditions warrant that, or I will take it off at +15. Many of my ultimate 10 point losses in the past would have been avoided had I used this strategy.

 

Thanks TinGul,

 

If the position moves against you, do you exit out of it at once?

Cut the loses down and let the winners run. This is okay. But have you or anybody tried applying staggerred stop losses?

 

sds.

[TinGull 10]

  sds said:

Thanks TinGul,

 

If the position moves against you, do you exit out of it at once?

Cut the loses down and let the winners run. This is okay. But have you or anybody tried applying staggerred stop losses?

 

sds.

 

Yes, I do. I have a 10 point protective stop on my trades. Timing does have to be pretty precise and all my trades are entered with limit orders.

[keymoo 10]

Tin, once you're comfortable with 2 cars, you might want to consider the hubert-style keep it or cut it loose method with your runner. Let's say you're long and you exit at +15 and then the market runs another 50 ticks in your favour - you're going to want to kick yourself. So, when you get to +10 or +15, you make a decision based on internals, price, etc. Keep it or cut it loose, then do the same at the next logical point such as a pivot level, fib level, or other support/resistance level. This will help you let your winners run. In trading to really grow your equity, you need to let your winners run a bit if the market is allowing it. Hubert's got a video on this somewhere in his archive.

[TinGull 10]

Nice, yes. Will definitely be doing that Thanks keymoo!

[notouch 10]

The problem with that keymoo is that wishful thinking often takes hold and you start cheerleading the market hoping that "just one more push" will get you an extra 50 points.

 

It all depends on your style of trading. Do you want 10 points twice a day or would you rather capture 100 points a couple of times a week? Whichever way you do it I think you need a target before you enter the trade because it's difficult to be objective and rational when you're in a trade.

[al_sellatmarket 10]

  sds said:

Thanks TinGul,

 

If the position moves against you, do you exit out of it at once?

Cut the loses down and let the winners run. This is okay. But have you or anybody tried applying staggerred stop losses?

 

sds.

 

Staggered... hm, a new word for me (I'm not native English speaker). I called it ladder stop. Did I get you right and this is what you call staggered (see image below)?

 

 

Trailing stop?

[keymoo 10]

I think an exit strategy for the last part of your position based on technicals is better than a limited fixed target. Why take only 10 points when the market is offering 100? I get out half my position at +5, quarter at +10 and the last quarter is left to run and I have 3 or 4 exit criteria to look for.

[lrushing 10]

One of the most important and overlooked aspects of position management is whether or not the initial trade taken was a low odds, medium, odds or high odds trade.

 

No matter what style you trade and position management techniques you use, if its a low odds trade, you will lose more money in the long run. Medium odds trades can either make or break your trading profitability. And high odds trades are usually the trades that are the emotionally scariest to take. However, if entered properly will provide the easiest and most rewarding profits.

 

Scaling-in has pros and cons and so does scaling-out. One of the overwhelming advantages of scaling-in is that if you have a low batting average with picking winners then this technique will help build your stamina and improve your entries. Similarly for scaling-out, if you take a lot of big loses, then learning to take some profits off the table helps more traders psychologically build their confidence and reduce P&L draw downs and pullbacks.

 

Remember, your high odds trade set-ups are in congruency with the overall market trend, hence you can scale-in and scale-out, or most any position management techniques and still look forward to great performance of those trades.

[weiwei 10]

Leroy, I agree with you on that. and whether to scale in or out, it depends on your style. For a trend catch trader, then scale in would be a better method.

 

But if one is to catch market inbalance on supply and demend, (what most intraday trader try to do) then scale out method would be good to collect points.

 

Basically, for intraday trader this rule works better: Do not let your winner turn into a loser.

 

For swing trader or position trader: then this is a better rule: Let your profit run.

 

 

 

 

weiwei

[sds 10]

  al_sellatmarket said:

Staggered... hm, a new word for me (I'm not native English speaker). I called it ladder stop. Did I get you right and this is what you call staggered (see image below)?

 

 

Trailing stop?

 

Hi al_sellatmarket,

 

Yes, you got it right.

 

The idea behind this is to avoid a loss when market takes the obvious stops out before making the move.

 

Instead of applying a particular price as a initial stop loss, have a zone.

 

generally useful for position traders.

 

sds.

[sds 10]

  lrushing said:

No matter what style you trade and position management techniques you use, if its a low odds trade, you will lose more money in the long run. Medium odds trades can either make or break your trading profitability. And high odds trades are usually the trades that are the emotionally scariest to take. However, if entered properly will provide the easiest and most rewarding profits.

 

Hello lrushing,

 

Could you explain me what exactly you mean by Low, Medium, High odd trades?

 

sds.

[maildigger 10]

  weiwei said:

Leroy, I agree with you on that. and whether to scale in or out, it depends on your style. For a trend catch trader, then scale in would be a better method.

 

But if one is to catch market inbalance on supply and demend, (what most intraday trader try to do) then scale out method would be good to collect points.

 

Basically, for intraday trader this rule works better: Do not let your winner turn into a loser.

 

For swing trader or position trader: then this is a better rule: Let your profit run.

 

 

 

 

weiwei

 

 

I have troubles with understanding the advantage of scaling out. Let's say:

 

I trade 3 contracts. My risk is x ticks, my target is 2 x ticks.

total risk = -3x

total reward = 6x

 

I trade 3 contracts. Risk = x, 1st target = x, 2nd =1.5x, 3th 2x

total risk = 3x

total reward = 4.5x

 

Is the advantage of the partial profits greater than the smaller risk/reward ratio in the long run?

[lrushing 10]

SDS,

 

There are numerous definitions and examples of "high odds" and "low odds" trades. But here is an example of each.

 

Assume at a high level the overall market is bullish (i.e., 60 min/daily charts on E-mini futures) and somewhat congruent. And you trade one of these markets, like the YM. If you are scalp trading and get a short trade signal on lower time frames (2/5/15/30 charts) then you are counter trend trading and going against the macro market conditions. Even though this trade setup might be a great setup, in relationship to getting a long trade signal on that same time frame, this short trade signal has lower odds of consistently returning a high risk-to-reward. So if you conduct a series of 3, 4, 5, ... short trades going against the macro trend, How many do you think will make you consistent profits and reach your target.

 

An example of a low odds trade could be taking a long entry signal in a downtrend, such as buying a sideways consolidation breakout on a lower time frame and the higher time frame is in a strong downtrend. This trade might work and you reach your target, but if you take enough of these trades, you will find your batting average diminishing and your capital also.

[descartes 10]

Actually i disagree with the statement "Whichever way you do it I think you need a target before you enter the trade because it's difficult to be objective and rational when you're in a trade."

 

If you have a trading plan and believe in yourself then , you should remain "objective and rational" when in a trade.

 

Not trying to be rude but just pointing out that in my experience men are much more rational and objective than a woman. But thats a thought for another post :-)

 

With regards to targets "notouch" does actually have a point but he forgot one thing : what target will i exit at ?

 

You would be surprised at how many people actually pick good entry points but close the trade at the first sign of profits and end up kicking themselves beause they did not trail the position.

[torero 10]

I think it comes down to having already battle-tested the strategy to know which targets or no targets make money in the long run before trading it. I personally set targets but many times I try to stick and let it run its course even after it has reached targets but convince myself to stay on the trade. There are days when i do want to kick myself in the ... but those don't come often enough in ER2 stomach through breakevens and/or stop losses more than 80% of the trading days. Just my personal perception.

[Freddie 10]

"last quarter is left to run and I have 3 or 4 exit criteria to look for"

 

Keymoo,

 

I use a very similar system with my trading of YM. I'm using 5 min charts so set my targets a bit higher and I'm only trading 2 contracts. 15 pt stop, moved to BE+1 once first target hit. Target 1 is 20 pts, Target 2 is based on 3 exit criteria for the running contract. I use pivots, a 50 pt trailing stop in case market really takes off and get volatile then I'm not using just the pivots for exit, and trendline break is my third sell signal. I draw tighter and tighter trendlines which then tightens the exit.

 

Seems to work for me.