Monday, October 17, 2011

Adding on

Many traders add on fresh contracts if the price moves against them. Personally, I think this is a poor choice to make. If you were wrong earlier, you are probably wrong now with a larger size. Occasionally, however, it makes sense to add on fresh contracts provided the odds are with you.

For example, today I went short below b4 and when the price moved against me I added on 1.75 points higher. Normally, I would be stopped out here but at this point it made sense to add on instead.

The conditions to add on for me are the following:

  1. The potential reward for being right is huge and the potential loss for being wrong is small: After b4 triggered, my stop was above it, so my add on position had only 4t risk but since it was a 1PB setup, the potential reward was 4 points at least, possibly 8 points or more.
  2. Entry is with-trend: The gap down, the strong b1 below ema, the failed H1 (already triggered) all point to at least a test of the low of b3, giving a with-trend entry.
  3. You were expecting a pullback due to price action: b4 had an entry side tail and most of it was overlapped by all prior bars so a pullback was very likely. Since you already expected a pullback you can enter lighter the first attempt and add on at the pullback.
  4. You are trading within your comfort zone: If you cannot be comfortable holding the extra contracts, you risk being shaken out mid-bar.
The following are poor reasons to add on:
  1. Your counter-trend trade went against you: This is the simply the best way to go bankrupt, throw good money after bad. Be a strong trader and let it stop you out. This will train your brain to enter on higher quality setups only.
  2. You think this will be a huge move and want to add on more contracts after the price has moved in your favor: This is usually a poor move. You should be getting out of your scalp position once the price moves in your favor, not adding on fresh contracts.


  1. Cad,
    For 2 legged pullback from b16 to b25, where does the 1st leg end?

  2. Nice trading on b4 and b5 Cad.
    If b3 was a possible 1rev and fBO long with a strong signal bar, presumably you felt it had failed when you shorted.
    How do you judge this in advance of the b3 low being taken out? Since b4 was a very poor EB for the bulls wouldn't they have kept their stops below b3 and reckoned on a pb given that b3 was OB?

  3. Hi Cad,
    Thank you for your post, it is very useful. Do you ever look at the Globex to get more information on a potential 1rev or 1pb trade?


  4. z.cui,

    b16 to b25 was a WP, which acts like an A2. The two red bars break the move into 3 small pieces.

    Bend, the gap down, the strong close on b1 suggest a first attempt to reverse is unlikely to succeed. b3 was an outside bar and therefore not a serious signal bar on a weak open.

    Eumaeus, I don't look at the globex. I have tried it but it did not contribute to my win rate.

  5. Why is the fact that b3 is an outside bar make it weak signal bar?