jjs:
This is what I understand, and has been doing so far (so far so good):
1. Scout (1x) is in trouble, and rescue 1 (2x) is initiated. If subsequently price move favorably, there are a few possible scenario:
1a. The best scenario: both scout and recuse 1 are profitable. In this case I will look at the chart to decide to exit all, or exit recuse 1 first, or just hold on for a little longer (rarely).
1b. Recuse 1 is profitable while scout still in the red, but the nett is a plus for this session. Again I gauge the price action to see how likely is scenario 1a going to happen, otherwise I will just close scout and rescue 1 at the same time, closing this session; re-access the chart and look for next entry opportunity for a new scout.
1c. Rescue 1 is profitable while scout still in the red, but the nett is a minus for this session. Again use price action to gauge the possibility of scenario 1b and then subsequently 1a, otherwise I would just close rescue 1 just to bank in whatever profit this position has, to reduce my exposure. I will even close rescue 1 at breakeven (ie zero profit) if it is badly deployed. This can result in 2 outcome:
1c(i) price continues to go against the scout, then another rescue has to be initiated and the process is repeated till the whole session is closed with small losses, breakeven or profit.
1c(ii) price continues to go in favour of the scout, and we had exited rescue 1 a little too early. Never mind, in this case the loss of scout continue to shrink, we can decide to close this scout if the favorable movement has shrunk the nett loss of this session to small losses, breakeven or profit. If the loss on scout is still too big to scratch this session, I would initiate another rescue if price action allows it.
1d. This is the worst case scenario, both scout and rescue 1 are in the red. I would wait for another opportunity to initiate recuse 2 (4x). While waiting for this opportunity, price may move in favour of rescue 1, then scenario 1c applies. If I don't have opportunity to get rescue 1 out then we are in scenario 2.
2. Scout (1x) and rescue 1 (2x) are in trouble, and rescue 2 (4x) is initiated. The whole process of 1a - 1c is repeated, except that now I have 1 more position of rescue 1 to handle. My intention then would be getting out quickly and breakeven or small profit, while trying to reduce my exposure once the favourable momentum is lost. If I can get all out at once, fine. If not I try to get all rescue armies out (except scout). If still not possible, I try to get rescue 2 out with profit. If still not possible, when we are at scenario 3.
3. Scout (1x), rescue 1 (2x) & rescue 2 (4x) are in trouble, and rescue 3 (10x) is initiated. Same as 2, but now I got 2 more positions (R1 & R2) to handle. the whole process of 2 is repeated. If this still not successful rescue 4 (20x) has to be initiated and it keep going on.
4. As you can see, keep averaging down is dangerous. With the rescue armies we deployed in battlefield, the P&L $ changes very fast, BOTH way. This can be advantageous to us as we can get the stuck session out at breakeven, it can also bust our account. This is where I think the use of the hard dollar amount or fixed % of account balance as stop loss is needed. Once reached, just get out to preserve the account balance to fight another day.
5. From my limited experience, I got hairy if my rescue 3 still failed. This usually means that I am (deeply) on the wrong side of the market. I will then try to get everything out, even at a reduced loss that can be 2-3x my average daily wins.
6. All the multiples (1x, 2x, 4x etc) are for illustration purposes. The actual multiples deployed will depend on the price action, chart pattern, how big is the current total loss and exposure.
7. I also find waiting for an appropriate opportunity to deploy scout, rescue and attacking force very important. Don't do it too soon and let the price trace out its randomness.
Hope these help.
