Before we talk about campaigning let me just add one more thing. You've got campaigning and you've got what I call parlaying. All right? So think about those 2 things. The first thing is campaigning.
You need some prerequisites if you're going to do campaigning. Number one, if you're a scalper, you're going for 1, 2, 3, 4 points and out, then forget it, you're not going to campaign. You can parlay, which we'll get into in a minute. That's one thing. So, if that's the way you trade, and that's not good bad or indifferent, then that's not for campaigning. OK? If you're not going to hold positions over night, you're basically not for campaigning. If you're not going to go for targets of at least 10 points, and preferably somewhere between 10 and 25 points, then campaigning is not going to work for you. So basically, you've got to be prepared to hold a position, could be a couple of days, could be a week or two, you never know. OK? And you've got to be looking for a target of at least 10+ points I would say. So without that, campaigning is not particularly going to help you.
I saw something that I think dbq wrote up the other day on campaigning. That was fine. In its simplicity, when you want to campaign... OK, I'm getting in on a position. Where do you want to get in on a position? Basically you want to get in at the beginning. What will give you a beginning? A beginning will give you, generally, just keeping a simple volatility stop The beginning is a dot1, or possibly the first dot2 that occurs. Preferably the dot1 is the beginning of a move, and to campaign you want to start off at the beginning.
We had a beautiful move down this past month, and just the past three days you've had a beautiful move up. Now, when you're going to campaign let's realize what's going to happen. Let's assume you're going to go into ten campaigns. Basically, what will happen with those ten, four of them will be non-events. Now, what do I mean by a non-event? Say, hypothetically, you get your position on at 100, and it starts to move up a little bit. You start to use some sort of risk control. That could be a combination of getting out of a few, raising your stop, etc. It can be a number of different things. So that would be Phase One, where you want to protect your risk. If we never get to Phase Two, but we did get through Phase One, and the market let's say (we'll talk on the long side) the market turns back down, for argument sake you're going to break even. So if you started 10 campaigns, four of them are going to wash out to an effect of nothing. That leaves you with six that are left. Of those six, three of them you'll put on your position and before you know it you're stopped out, boom, gone. OK, so you're going to have 3 losers. That leaves you with another 3 trades. Those three trades will work out. They'll get you to Phase Two and Three.
So, basically, when you're campaigning you want to get your position on, be looking for a target in excess of ten points, and preferably more than that. The first phase is somehow, either raising your stop, putting out a little bit, whatever you want to do, to bring you to a theoretical no-risk position. Let's say if it moves up 5 points, you've got yourself to a break-even position. Now, if it starts moving additionally, you now can start adding to it.
All right, you now start adding to your position. When you add to your position, you're going to raise your stop. Again, if it doesn't work out, you'll wind up breaking even. So we've added to our position. Now how do you exit a position? What you basically want to do is just fractal down a little bit. If we just take a look at what just occurred, in the last three days you had a little dot1 [1/28/05, 15:00 ET]. Oh! That was a nice place to start. Running up a little bit, you've got to protect yourself. And yesterday you had a dot2. That would be a place to add to your position. We'll use round numbers. So let's say you got in at 1170, and let's say you were able to add to your position at 1180. You put a stop in at 1175. You broke even, no big deal. If not, you've got twice the position on. Where it's going to go, I don't know.
Also, within the campaigning, what you have the ability to do, when the market gets overbought you can put some out a little bit, take them back for a point or two. You can trade against your position from time to time. This is an art form, so there're no absolutes on it. The only thing that's kind of absolute is if you're in the position and it runs up Don't trade against your position on a dip, OK? You want to trade against your position on some sort of boil, as I call it. So you'll put out some stuff on the boil. It has a little dip, put it back on. What is that doing for you? It's protecting your risk.
So in it's simplicity, campaigning requires a starting point, the ability to be looking for a 10+ point profit at least, you've got to be prepared to hold overnight, and you've got to have a lack of a scalping attitude to do this. Any questions in that area?
Trumbull: The dot1 is from a downtrend to the long position or from a dual trend there?
Yeah, a dot1 is the starting... Forget the fact of the dual trend. A dot1 is the start-off period, end of story, OK? You want to be careful when you pick and choose the dot1's. I mean if you're in a downtrend, you'll get a dot1 to the buy side. Sorry, go ahead Trumbull.
Trumbull: No, you answered my question. The dot1, to be the start of a position, you really should be in a downtrend.
Yeah, you want to start at the beginning point. What is the beginning point? It's a dot1. That's basically where you want to start it. You can also start campaigning if you're in a nice downtrend, or an uptrend, and you get into a daily window of opportunity. So if you get into the window of opportunity and now get a dot1, that's a great place. It might not be a dot1, because let's say you're in a downtrend, so you didn't get a dot1, but you got what would look like a dot1 if you weren't in a downtrend. So windows of opportunity on the daily... Generally when you get these windows, and they work, they're going to go for a minimum of 10+ points. You had some beauties going up in December and you had a couple of beauties coming down in January. You had some lovely things there that gave you the opportunity to get 10+ points, all right? That's basically where you want to start from. Like, for example, we're up right now. This is not a place to start, you know where the market closed today, this would not be a place to start a campaign position from. You should have started from the dot1. If you missed it there, you could have possibly started from the first power buy, which occurred late yesterday. But those would be your basic starting points. I wouldn't even take the next power buy as a starting point. I'd wait for a window of opportunity to occur before you'd get a starting point. But again, you've got to be looking for 10+ points at a minimum for the campaign type of thing to work out. Because if you're going to campaign within the day, things happen so fast, you're into the noise level, you're not going to be agile enough to really accomplish anything.
Let's make it a question and answer thing on this and then I'll get into parlaying, which I think is better for most of you, because I don't know how many of you really stay with positions that long. From what I hear and see people are in and out for a couple of points most of the time. But let's stay with the campaigning, any questions?
Wave: Do you consider profits only on closed positions or on open positions as well? Or is it just a matter of choice?
That's a good question. What do I consider a profit? Look at it this way. We'll use just the last two or three days. You had a dot1 there. You bought over there. Let's say you sold out against it, you bought back, you sold out against it, you bought back, you bought more, you added to your position. Now at close today you can be either flat, you can be long, but you certainly shouldn't be short. Now, does that mean that the campaign is over? No. The campaign is over when you write end on your trading sheet, or at least that's what I do. I will play the position. From time to time I may be flat during that period of time and buying back on a dip. Until I say, "Oh, thank you very much, I'm finished with this campaign," it's not over. So there's no such thing as open profits, closed profits. There is a point where the campaign ends. Then, if you did it in an overly simplified fashion, you bought one at 1170, you bought another one at 1180, let's say tomorrow it jumps up to 95 Oh, I'm going to sell the two of them out at 1195, thank you very much, and I'm ending the campaign and waiting to find a completely new starting point. That game is over. That's fine. You might have started off buying it at 70 or whatever the heck it is, or you might even have snuck in a little bit earlier if you want to get a little bit fancy. And you might have made 15 or 20 trades up to this point, in, out, back and forth without being short the market, now. You could be flat, go back to long, add more on dips, etcetera. You could have made 15, 20 trades, and maybe you blew everything out on the close today. So you've got 15, 20 trades, and what I do is literally write E-N-D on my trading sheet, and that campaign is over, finished, done with. If that's what I want to do If I want to keep playing it, then I'm still playing it tomorrow. I don't know how it's going to turn out. But a campaign will end in two absolute ways. One, you hit your stop, and you get stopped out, boom, it's over. That's the end of that. The other absolute way is if we say, "Oh, I've got enough profit, thank you very much, I'm ending it." Those are the two basic absolutes. There's a third way to end a campaign. Let's say it's 1170, you started over there. Let's say you look at the chart and say, "You know what, maybe this could get up to around 1200, so if it gets up to somewhere between 1195 to 1200, I'm going to sell out whatever it is, and I'm going to end it there, because I'm looking for a target. And it would have 25 points or so on the target. So you want to end it at some point. This is not super long-term trading where you buy and hang on for six months or something. That's another ball game in and of itself, and you're using a different time frame. So you can end your campaign because you got stopped out, end your campaign because, Oh, I got enough profit, thank you very much, end, or you can set a target goal and if it gets up into that target area, thank you very much, I'm finished with it. Those are the basic ways you'd end something. Any other questions?
Trumbull: I've got another question. When you've moved up a little bit and you take a little profit, how much of a dip do you allow to take place before you add to that? Do you just go by the volatility stop, or do you use other methods?
Basically what I try and do... This is what I personally do. We'll assume we played this one and everybody played it right. You got in at 1170. Let's say that yesterday when we got a little bit of a boil up there above 82, you sold it out. So I want to sell out into that rally, into the boil. And then where do you buy it back? It almost doesn't matter. You want to buy it back for a point? Buy it back for a point. So if you bought one at 70, sold it out at 82, bought it back at 81, so you added a point. What did that really do? You've reduced your risk by a point. Then you have a dip where you set off the possible dot2, you want to buy into that dip. Let's say you bought it at could have bought at 79 let's say you bought it at 80, for argument's sake. When you buy that at 80, you've now increased your position. OK, put in a stop at 75. So what happens if you get stopped out at 75? You made 5 points on your initial, you lost 5 points on this additional buy. That breaks even. Oh! And the one you sold out on the boil you made a point or two. That's where I came up with that out of 10 possible campaigns, four of them are going to end up as a wash. If that happens, it's a wash. It doesn't accomplish very much. Some will lose a point or two, some will make a point or two. They become meaningless. If it was wrong right off the bat, boom, those are the three that are going to be wrong, and then you'll have three of them that are going to be right. You can add any place you want. If you want to look at today's chart, you can add on the dip. You can do things like this. You'll notice that when I post charts you'll see all kinds of parabolics and stuff. We opened up around 83 or whatever the heck it was. Then we came back down to 81.50. Let's say you had your double position on because you bought initially and then you bought yesterday into the powerbuy. Now, if you're looking at it, you'll see Let's say you want to buy on strength, which I don't particularly like to do, but I will do it occasionally. Let's say you bought two more at 83.50. You bought one at 70, another one at 80, now it jumps up and takes out that little ledge there, and let's say you bought 2 at 83.50. Again, this is an art form, it's not an absolute science. You bought them at 83.50. Let's say you put a stop on those two. I'm going to round off the numbers. You bought them at 83, you put a stop on those two at 80. So you just lost 3 points on 2 contracts. Now what you want to do to protect your risk on the You had the other two with a stop at 75 to give you a break even. Bring that stop up to 78. You're still campaigning, and you're still at a break even. If you only bought 1 additional one on a breakout at 83, and you lost 3 points on it, then you only have to bring the stop from 75 up to 76.50, a point and a half, again for risk control money management, to leave you with a breakeven situation. On the same token, another way of doing it... We're in an uptrend, we had a little bit of a dip, like I've shown you that stuff I put up all the time. We got down to about 81.50 or so. You're in a little dip but you're still above the volatility line. Let's say you want to buy one over there. You can buy one over there. Put on a 3 point stop over there. So let's say you bought one, we'll call it 81. I know that would have been difficult but we'll give it the benefit of the doubt. So let's say you bought one at 81 and that would have been somewhere around 10:00. so if you bought one over there, and then it starts to break out above 83, in that area, let's say you buy another one. So now you bought 2 of them with an average price of 82. Put in a stop at 80, below the lows. You're risking 2 points. If you're wrong on that, what do you have to do? You have to raise your stop on the other 2 that you have left. Bring that up to 77, you're still at breakeven. You want to get crazy on the whole thing, which I've done a number of times? Follow this. You bought one at 70. You bought another one at 80 initially. Your average price is 75. If you kick them out at 80, you're going to take a 10-point profit. Five times two, you'll take a 10-point profit, because the average was 75. OK, you get to 83. Knowing that you're going to raise the stop on the others to 80 Let's say at 82. If you buy 5 more at 82, and putting a stop at 80, what have you ended up with? A high probability that you'll get stopped out, but all of a sudden you went from 2 lots to 7 lots. If it didn't work, then you screwed up the campaign, but you now got from 2 lots to 7 lots. And if you did that, imagine what you could do when you got into that little wedge between 87 and 89. You could have put on 10 more over there with a little bit of a breakout with a stop at 86. I mean you can be as creative as you want, but you're going to go through three prerequisites. You're not a pure scalper. It doesn't work that way. I'm not saying that scalping is good, bad, or indifferent. You're in there. You're getting in at the beginning, going through phase 1. You have no problem holding over night. And you're looking for a minimum minimum 10+ points profit. So if you're doing that you've got all sorts of opportunities to do all sorts of crazy things within there with basically no risk, where you're starting out with a 1-lot, then going to 2 lots, you could be up to 10 lots at some point. That's an art form, and I can't tell you exactly which way to do it, but the one thing you will know What you do know is that you're trading in one direction. You're trading the long side. Doesn't mean you can't take profits, you know, when the market moves up, and buy back on a dip. Let's look at it another way. Let's say you did some fancy stuff there and bought some extras earlier today. And let's say you decide to take your profit at 85. So let's say you've bought one at 70, one at 80, 2 more this morning at let's say 82, and you kick everything out at 85. And now the market runs almost straight to 90. Big deal, it doesn't matter. Let's see where you stand on that. On the one you bought at 70 you're plus 15 points. On the one you bought at 80 you're plus 5, now plus 20. The 2 you bought at 82 you're selling them out at 85, so you've got another 6 points, you're plus 26 points. Now we get up there and we back around, we go into a little flat area around the 87.50 - 88 area. You're plus 26 points. You want to buy? You still want to participate in this thing? Go right ahead. Let's say you buy 4 contracts. So if you buy 4 contracts, let's say at 88. We're playing numbers now. If you lose 6 points you're going to lose 24 points, or 6 points times 4 you lose 24 points. But you made 26 points before. So you're risking back part of your profits. So you can buy 4 contracts there, and if you want to kick them out as they pop up again on that boil when it got up to 91, go right ahead. There is an art form in that, but the key thing is that you're always going to be managing your risk, always going to be managing your risk. And yes many times you'll sell out into strength and it just keeps going. So you buy it back higher, but you buy it back higher when you can bring in a tighter stop for whatever reason, and there are many ways of bringing in that tighter stop. I hope that answers it, any other questions?
Wave: In a campaign, do you ever Say you're up, for argument's sake, 50 positions, 50 contracts, and it doesn't take much of a trend to get ballistic. Two questions. Do you ever use anything to prevent yourself from risk of ruin from a runaway move? That's what I'm always worried about.
I didn't understand that totally, but I think what you're asking is how do you protect yourself. You always have a stop in. Whether it's 50 contracts, or 500 contracts or 3 contracts. Three is a lot to somebody and 300 is not very much to somebody else. But no matter what it is, you always have that approximate breakeven stop on the campaign. And that's got to be written in stone. That's got to be in there. You're not double guessing, you're not checking. It's there. So that's going to protect you.
Wave: Another question. If you're parlaying and you get ballistic with the number of contracts that you have on, that's assuming that you can get out reliably with the stops.
You can get out reliably. If you have the stop in there, you'll get out OK with it. Yeah, granted, if a bomb goes off or something, that's the exception to the rule. But that can happen when you're on the short side too, so it could work to your favor. In the long run, all the crazy things will even themselves out. In the short run, if it goes with you it's fantastic, if it goes against you it can hurt an awful lot. That's the only exception to everything, where you might not get your stop. But in any kind of market, if you're talking 500 contracts in the e-mini's you're not going to have any problems getting filled. Maybe you'll get screwed for a quarter or half a point. Not very often, but This market is entirely too liquid to worry about that stuff. If you're trading 10 or 20,000 contracts, that's another story, but I don't think too many people are doing that. So 50 contracts, if that's ballistic to use 50 contracts? It's absolute nonsense. In this market it doesn't mean anything. Any other questions regarding campaigning?
Wave: Do you ever back down the size of your position and just allocate a really deep stop on part of your position and just let them run?
Does that sound like a reasonable
idea to you?
Wave: Not really, but
I do that quite often, absolutely! What the heck is wrong with that? That's a great idea. Let's go back and say you bought one at 70, one at 80, you played around somewhere around 82, kicked them out at 85 or whatever the heck it is Or let's say you didn't even kick them out at 85 there. OK it runs up to 90, you're taking out 35 or 50 points of profit. You have 4 contracts on. OK, you're bullish on the market, you've looked at your daily charts, you've looked at this, whatever. Oh, this could be a nice position. Fine, back down on the size. Let's say go back down to 2 contracts, and if you're up 40 points you can put in a 20 point stop on that and walk away from the damn thing. Will it work? I don't know. Sometimes it will, sometimes it won't, but then it's basically, I'm committed to a much longer term thing there. I did some work to get into the market, I've gone through a couple of phases here and I'm backing down on the size of my position and putting my stop way down there, and I'm walking away, because I think the market can go a lot higher. Absolutely a wonderful idea There is one hard and fast rule, that's the risk control and money management. The rest of it you can do anything you want that's somewhat logical. Bring your quantity back, maybe the market will jump up another 15 or 20 points. So you've got some more profit there. And at that point, maybe it forms some sort of a formation, we'll call it a powerbuy or whatever the heck it is. You want to put more contracts back on and raise the stop on everything? I do that all the time. When I get too far away from my stop I'll kick out my position. I don't care if I buy it back higher, as long as I'm buying it back with a tight stop. So for argument's sake you did that, you lowered your position size, we jumped up to 1210 or whatever and backed around a little bit. You've now got a real good powerbuy over there. You can raise your stop on your position. Let's say the powerbuy came at 1210 for argument's sake, which would give you the stop at 1207. You say, OK, if it gets to 1207 I'm going to end the campaign. So if you don't add any more, you put your stop at 1207. Let's say-and I'm going to make up a number-let's say you're taking 60 points of profit. You want to get ballistic and crazy? Let's say you've got a 3-point risk. You want to add 20 contracts at that point? If you add 20 contracts and lose 3 points on it you lose 60 points on it but you made 60 points on the other part. You've gone from 2 contracts up to 22 contracts. You can do any kind of crazy stuff within it, because you're not violating the basic tenet of protecting your risk. Once you get out of phase 1 of a market you don't want it to turn back into a loss. Going from 2 to 20 I think is a little ridiculous, but I'm just carrying it out to that point. But if you get up to 1210 and let's say we're playing it relatively sane You want to kick them out because now your stop is so far down, and you don't want to let the market go down 25, 30 points before you get stopped out, so you kick them out at 1210. The market fiddles around, maybe you'll get a buy signal, or a powerbuy at 1205, maybe you won't get it until 1217 or something like that, who knows. But when you get it over there you've got a 3 point stop. So now, since you haven't written end on your trading sheet, go back in there and now all of a sudden you've only got a 3 point stop. You can play this any which way you want that makes sense, realizing that the first key thing is to get out of phase 1. Once you get through phase1, worst-case scenario should be an approximate breakeven.
Wave: OK, thanks, yeah. It's getting your mindset to accept that risking those open profits is OK because you're trying to get more profits.
Yeah. To me there is no profit until I end the campaign. Then, once I've ended the campaign, then I say, oh, how much profit did I make. If you start worrying about too much of an open profit, and giving it back and this and that, it will play with your head. As far as I'm concerned, we'll call it 3 points worth of risk. When I get through phase 1, I've got my worst case scenario is breakeven, approximately. I don't count the profits that I have unless my stop gets far away, and I say, you know what, I'm going to kick it out. Maybe I'm going to kick it out, but I'm not going to end the campaign. Maybe I'm going to kick it out and end the campaign. I've got more than 15, 20 points of profit, fine, I'll end the campaign and wait for another one to show, and there'll be more of these. They come along all the time. Not every 10 minutes, like a scalper can, but they come around a couple times a week, or at least once a week if not more than that.
End it whenever you want. That's
your choice. You can set a dollar target. You can set an approximate price target.
If your friend just called you to go fishing, and you've got some nice profits,
fine, I'll end it. You can end it wherever you want. You can follow it up with
some trailing stop. I don't like that usually, because you're always giving
back so much. I'd rather sell it out into strength and worry about starting
a whole new campaign at some point. So I tend to like to get out into strength,
but yes, end it whenever you want. Except, here's where you don't want to end
it. Let's go back to the original hypothesis I was giving you. If you're going
to try 10 of these, 4 of them are going to be washes. Forget those. You're left
with now 3 winners and 3 losers. Let's call it a one contract deal and you're
risking 3 points. If you're going to be taking a 3, 4, 5 point profit, you're
not going to end up doing anything. You won't accomplish very much. That's why
you've got to be looking for ten points plus. So no, you don't want to end the
campaign because, oh, good, I've got six points worth of profit, I'm going to
end it. if you've got 6 points of profit it's showing you that, hey, you've
got a start point. It's starting to work. Why stop it there? If you get more
OK, 15 or 20 points, you want to end it? Go right ahead. But you
don't want to end it too early, because then you're going to blow the math right
out of the water and it's not going to make you any money. What you're trying
to do on the 10 trades, 4 of them we'll call it the wash so we'll take that
out of the equation. You're left with 6 of them, 3 winners, 3 losers, so you've
got 50% winners. What you want to be able to do is maintain at least a minimum
of a 3:1 risk/reward if not a lot more than that. So if you can maintain a minimum
of a 3:1 risk/reward, and you're running 50/50 at 3:1, you'll make a hell of
a lot of money. And if you combine it with parlaying, which I'll get into in
a minute, you'll make really a lot of money. So, no you don't want to end it
early, but once you get 10+, if you want to end it any time you want, fine.
So you can do whatever you want with that.