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Old 04-25-2009, 11:17 AM   Nav to Top  #1
Miles
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Arrow Scale Trading Spreadsheet

This is not for everyone, but it's the way I like to target my stocks in a bear market.

Also you may like to check out Reverse Scale Trading.

This was originally posted by andrewbt and it is a great starting point, which you can modify to your needs. You can get pretty crazy with these including pulling delayed charts and prices from Yahoo via their Finance API. Maybe we can go over that next.
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File Type: xls ScaleTrading.xls (27.0 KB, 78 views)
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Old 04-27-2009, 09:39 AM   Nav to Top  #2
AndyB
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Hi Miles,

It was me that posted that originally (I changed my username and changed it back!). I was prototyping the system and found out that it was pretty risky. Why? You need to be very sure of the eventual move in your favour. It works in a bear market when people are irrationally selling as you can catch a bottom nicely. It also works if you have done your research and know the stock in question is grossly undervalued. Fund managers use this approach to accumulate stocks they know will be outperforming the market in a few years.

However, in reality ifyou get the eventual direction wrong you can end up with a huge dent in your portfolio as you are essentially adding to a losing position. So I've been experimenting with this technique and found that the reserve scaling works a lot better (Its safer).

I've tried reverse scaling on the S&P500 futures. Another name for this method is "Snowballing" a trade. Its simple.

- Say you buy the S&P at 800 with a stoploss at 790 and the trade moves in your favour.

- At 810 you add to the position an equal dollar amount, but you move the stop to 800. Now your risk is the same as when you'd bought at 800 with a stop at 790.

- Say the index continues to move in your favour, add at 820 with a stop at 810. Now you are gauranteed to get out at break/even if it goes wrong.

- Add again at 830, move the stop, again at 840, move the stop.

What happens is you end up with a bigger and bigger position but less and less risk as the trade moves in your favour. A small trade ended up becoming a massive snow-ball.

Of course you must get over the initial stage, which is the risky bit, where you accumulate your position. I am experimenting with levels and stops to get this right. 10 points is too little as the S&P tends to whip around all over the place...

I'll check out that reverse scale trading site as they probably have a good idea there. Just a word of warning about scaletrading. When it works, its awesome! When it goes wrong, it can get pretty ugly, fast ...

Edit: In fact, that guy mentions scale trading as the worst possible trading strategy going
http://invest-faq.com/fiveminute/chapter6.html

Yikes!!!

Last edited by AndyB; 04-27-2009 at 11:10 AM..
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