What is your multi-lot trading strategy?
December 22, 2005 by Trader Rich
I’ve been trading mainly 1 lot at a time. Sometimes I trade 2 lots but when I exit, I exit both at the same time. So even though technically, it is a multi-lot trade, I’m not using a multi-lot exit strategy.
I figure that I should start reading more about exiting from multi-lot positions before I start doing it. From what I’ve read, there are benefits to multi-lot lot trading. As a multi-lot trader, you are able to scale out your positions by closing positions at the respective target levels. While doing this, you can also trail the stop-loss level to the breakeven point or the previous target.
From what I’ve read, Mark Douglas recommends the following in his book, "Trading the Zone.":
If you do a multi-lot trade, say a 3 lot trade, you take 1/3 of the position off at the first price target if the market gets there. This leaves you with 2 lots. You would then take 1/2 of the existing position (in this case, 1 lot) off at the next price target. This then leaves you with 1 lot. The recommendation is to move your stop to the break-even level for the final lot and let it go wherever the market takes it.
John Carter uses the scale out method which is explained below:
For all intraday plays, he gets in all at once and scales out as the position goes his way. The target for 1/2 of his play will typically be small as the goal is for at least an initial profit. Once he has this profit, he will give the second half more room to play.
For swing trades, he gets in all at once and out all at once.
I don’t remember who mentioned this but I believe there is a trader who trades a given number of lots dependent on whether he is trading with or against the trend. If trading with the trend, he opens a position with 5 lots. If trading against the trend, he opens a position with only 2 lots.
I’m going to have to learn more about this before either using an existing or developing my own strategy.
What is your multi-lot strategy?
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It was Sam Seiden on his CBOT seminar where he discussed having more targets on a trend move than a countertrend move. I like to think of it like golf; you can not proceed to the 2nd hole ’til you have filled the 1st hole. It’s that 1st target which pays your way to the 2nd target. This also helps avoid that syndrome “I’ll just hold out for a couple more pips!”
It was Sam Seiden on his CBOT seminar where he discussed having more targets on a trend move than a countertrend move. I like to think of it like golf; you can not proceed to the 2nd hole ’til you have filled the 1st hole. It’s that 1st target which pays your way to the 2nd target. This also helps avoid that syndrome “I’ll just hold out for a couple more pips!”
Normally, I also trade either 1 lot, or 2-3 lots (depending on my confidence in the set-up) as if they were 1 lot. Woodie’s CCI-based trading strategy, however, dictates specific points where lots should be doubled or halved depending on market signals, and I will be testing these out over the coming weeks to see if makes a notable difference in per-trade and end-of-week balances.
Normally, I also trade either 1 lot, or 2-3 lots (depending on my confidence in the set-up) as if they were 1 lot. Woodie’s CCI-based trading strategy, however, dictates specific points where lots should be doubled or halved depending on market signals, and I will be testing these out over the coming weeks to see if makes a notable difference in per-trade and end-of-week balances.