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I ask this because I notice I would make a lot more money if I just traded a set number of contracts rather than switching it on difference circumstances. My thinking behind this is if a trade is worth taking, it's worth using a set number of contracts for in general.
Linda Raschke recommends using a set number of contracts in order to be consistent. She explained it best when she said 'if I use 2 lots for the trade I'm not sure about, that's going to be a winner, and the one with 10 lots that looks like a slam dunk, that's going to be a loser'.
Personally I'd say it depends on where your stop is, doesn't it?
Because the quoted example above only makes sense if the stop distance is the same as well, otherwise the 2lot may cost you more than the 10 lot.
Admittedly in Futures it is much harder to size your position accordingly due to the large "steps" (i.e. contracts), but in FX I always adjust position size to represent my % risk depending on the pair and SL placement.
I personally vary it depending on the time of day I'm trading (pre/during/EOD/post market) and context of trade sequence.
Scaling in/out is a great way to improve your profits and add/remove risk as needed. You're being charged a round trip fee no matter what, so it doesn't really matter if you're 5 in/out or 1/1/1/1/1 -1/-1/-1/-1/-1, etc.
Here's an example of waiting a trade out that turned out to be the best sequence of the day.
If you click on the above graphic and check out the 5-min charge in the lower left it will give you the best look of how that specific sequence turned out.
The logic on it was this: Since I took the heat and waited for the market to bounce back, which I felt it would, why not add to the trade while it's going in my favor and make the most of it? I'd already taken the heat/risk, might as well get paid for the stress of holding the line and waiting it out.
You miss 100% of the shots you don't take. - Wayne Gretsky
Why did you add on so high up though? If you're scaling in wouldn't it have made more sense if you added at the bottom since as you put it, you thought the market was going to bounce (i thought that's what scaling in was good for to improve average entry price). Maybe I'm misreading this but it seems like you took a lot of heat to get a little bit of reward (relatively speaking), so you had higher probability due to incurred risk but you sold yourself short by taking small profits for the risk (drawdown). Also your second entry was on an upside breakout - if this buy was done with a stop, isn't that risky given the bear trend that followed? I don't know the prior PA but there would be limited upside when you added on based on this picture alone (trapped bulls looking to sell out of losing positions / short sellers looking for a pullback)
Averaging down can work, but I wanted confirmation that the market was going to move back up.
Scaling in / out works both ways, you can add to the trade at a higher price and the compounding affect of more contracts will increase your profits. It may seem counter-intuitive, but I do it quite often.
I will also form a core position and trade in / out of it and add to it for both price improvement and scaling at a higher price if I feel the trend or premise for the trade is still intact.
I'd have to go back to my journal for the exact timing and rationale for the trade, but I can assure you it was a profitable endeavor.
You miss 100% of the shots you don't take. - Wayne Gretsky