DTB: Trade management when it goes against you

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snowbug
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DTB: Trade management when it goes against you

Postby snowbug » Tue Aug 11, 2009 11:25 pm

So far I've seen tons of discussion regarding how DTB works, when you take entry, etc., but I didn't find a good thread discussing the existing strategy when the trade does not go as you hope. And I think it's an equally important topic for profitable trading.

TRO mentioned that in trading "anything can happen", and he also made the analogy that trading is like driving a car, you react to what you see on the road instead of predict what will happen. So I wonder for those who trading DTB successfully, how do you manage trades that go against you to stay profitable?

TRO also mentioned that you pretty much have three options: exit the trade, hold on to it, or add position. But how do you choose among these options? Can you explain the thought process when you make a decision on choosing one of these options?

I understand there won't be a "correct" or "incorrect" answer, as it is influenced by many factors like account size, trading style, personality, etc. Let's concentrate on discuss the reasons behind a decision if you choose one of the options, not simply giving a formula to follow. I hope this thread can help each one THINK and CREATE a strategy that suit himself / herself, by learn from the collective wisdoms of the traders on this board.



Here is my thoughts on this:
Adding position eventually will avoid any losing trades and make every trade profitable, if you are able to maintain enough net account balance to avoid a margin call.

Margin call policy differs from broker to broker, and MBTrading's webpage contains some conflicting calculations regarding its margin calls policy. I'll assume that with a 100:1 leverage, one needs to maintain additional 50% of the margin requirement to avoid margin call, so for a USD based currency, a $1000 account will only allow you to have 1000/(100*1.5) = 6 mini lots. This means that you can add 1 position 5 times to your original trade based on the assumptions, and you better be in profit after adding these positions. Apparently this is too risky so one probably can reduce the initial lot size to 0.5 mini lot or even lower so you can add 1 position 10 times or more to lower your average entry cost. - Note that the commission costs for all positions also need to be considered.
It's hard to determine how effective you can lower your average cost by adding positions, as it depends on when you are adding to it. If you add positions at fixed interval (say 1 position every 100 pips down), you basically average down to 50% of the actual draw down compare with not adding positions. So for example, if you are long USD/JPY at 96 and the price keeps dropping, if you add 1 position for every 100 pip of drop, after adding 10 positions, the price is at 87 and your average cost for all the positions is ate 91.5, 450 pips in loss instead of 900 pips in loss if no position is added. This means that the price need to retrace 50% to allow you exit all positions breakeven (not counting commissions).


Alternatively, one can set a fixed S/L whenever the trade goes south. I don't have a good number, but I think 5-10 pip S/L is reasonable, with the scalping P/T at 10pip. I wonder if this is what most of you use? This basically counts on the winning ratio of all trades. But need to watch out as some broker might be stop hunting.


Holding to the position requires a judgemenatal call from the trader. You have to explain to yourself why you think the breakout will retrace back to give you the 10pip profit eventually and we know TRO will say "don't predict the price!". I don't know when this option should be chosen over the others. What is your thoughts?


Let the healthy discussion begin!

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retireme
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Postby retireme » Wed Aug 12, 2009 5:32 am

Hi Snowbug

An interesting thread you have started here. I am sure you are going to get many responses and just as many varied opinions. So I will start with mine...

Many people would consider me to be over cautious, however, it is what suits me and my account that matters, not what others think of your trading and money management method. At all times, I believe comfort is the way to proceed. If you want thrills, try skydiving...

Once a trade is identified, I ease in with 1/3 of my total trade (e.g. total outlay 3 lots, I start with 1 lot) if the trade advances in a favourable direction (still within the range of the trending market) I add another 1/3 or 1 lot. I do this to a maximum of 3 lots, if and only if, the market is still moving in the favourable direction. If not, I wait. When the reversal has been identified and confirmed, I start to ease out in the same manner as I got in. The only thing I have left out here is, when I add to my position, I change the SL of the previous trade.

Obviously, I don't make as much profit as I could but I am happier with this version of risk management and I am not sat on the edge of my seat or holding on to my hat. It ensures that if I have a winning trade I take Pips and if I don't, my losses are much lower.

I hope this was enough of an explanation and I am sure the method is not mine. Many people trade this way... and many people don't! :)

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Postby noone22 » Wed Aug 12, 2009 11:00 am

I was taught simple trade management in regards to stops
and I'm following them religiously
(haven't seen better & simpler option):

1) Always enter the trade with SL and PT by placing limit order.
If (for some bloody reasons) entered without SL - set it up
immedeately after entering the trade

2) If trade is going in your direction - trail my SL (if possible)
till breakeven or higher (for multiple contracts).
Don't tauch SL in any other scenario (price is going flat or against me).

3) If trade is going against me - wait until I'll be out by price
touching my SL.
Increasing SL or adding to a position in a loosing trade -
isn't good and shouldn't be done.

4) To keep calm - after entering the trade don't follow it,
just wait (preferably - not looking on the screen)
- what will be hit earlier (SL or PT).

To tell you the truth, I'm not usually following this rule -
still watching (and praying sometimes) for price action,
but of course I know, that price doesn't care about my prays -
it's more about sport heat/entertainment.

However, with SL in place - I could go for a coffee break anytime
during the trade to return and find out what are the results.

N.B. - I'm scalping most of the time with usual SL of 7-15 pips,
so there is no big drama if trade is lost.

Maybe, I'll be practicing different techniques with SL of 100-200 pips,
but currently it's not my trading style.

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Postby snowbug » Wed Aug 12, 2009 11:43 pm

Thanks for sharing, retireme and noone22.

I think adding / removing position dynamically based on the price movement is a very clever approach. You are not trying to predict the price movement, but rather react to it. It does require you to be constantly monitoring the price movement in front of the computer while the trade is active though.

I agree with noone22 that adding to a losing position is not a good idea, especially after I thought it through, price can easily drop many hundreds of pips in several days and adding position is basically trying to guess the bottom of the price. And if the price keep dropping, the loosing position is draining the account balance in an accelerated fashion.

My own experience also shows that if S/L is set later, I tend to set it lower than it should have been if the trade is already in red. I know I need to train myself for better discipling. Maybe not looking at the trade that often is good idea to try out so I am not that attached to the active trades.

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Postby retireme » Thu Aug 13, 2009 12:10 am

Snowbug

Your topic title is DTB Trade Management. As far as I understand it and the way I use it, it is a scalping method. As we have already discussed, to each his own when managing the risk. In other words, know what your target is, know your money management / risk position. Trade - get in, get out with the minimum of fuss. I would be happy to hear from others using the DTB method and see if they will put a trade on and leave the computer to let it run. I know my comfort level doesn't allow for that. Whilst the trade is alive, I watch it!

Once again, it is a good topic to discuss and one I haven't seen dissected before on this forum.

Regards

Retireme

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Postby snowbug » Thu Aug 13, 2009 1:05 am

You are right, retireme, for scalping trade, one must staring at the monitor to act quickly. I got carried away and was thinking of longer term trading. And I think adding and exiting trade gradually is a great idea.

Some platform, like MB Trading, will merge you positions into existing ones and simply show the average price as the fill price. it makes it easy to find out the actual profit / loss after adding positions.

I'll definitely give this method a try, combined with what noone22 mentioned regarding only adjusting S/L when trailing stops.

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Postby jacal1 » Thu Aug 13, 2009 7:02 am

Retireme, noone33, snowbug

good to know there are other traders who are finding success in DTB

As for me position sizes will be anywhere from .5 lot to .20 lot on initial entry and 50% of initial on any drawdown positions with 10pip seperation.

as for SL it is the last 3 semafore on H1 or last strongest sema on H4.

Exit is 20pips from initial entry or avg price of multiple positions. This has worked for me with success. ( no news trading only if ima really sure i want to lose do I trade this)

As for a full time currency trader DTB has definitely sharpened my sword to a tune of 4-5% daily but with aggresive trading as this I'm keeping on track 2 consecutive months at 2% daily.

But as most of you have said each to his own as each of us have our own feelings, weaknesses and strengths but with all this variety it is good to know we can all find success by sharing what we know, so refreshing.

DTB!!!

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