VWAP false breakout

[Ranajit Chatterjee 10]

i am fighting with some strategies i feel is not quite right, can suggest something here. I bought UAL after VWAP - 26.54 and was long but it went as false breakout, now i am in loss but while losing i added more to make it better averages, now UAL went completely down and probably will go up make it break even, but if i used stop loss, i will be stopped out long ago. fortunately i didn't. I am on SIM, so all virtual money, can you suggest if i am doing right?

[Justin 262]

Hey Ranajit,

I'll be honest, this isn't great, but I'm super glad you're asking questions! As a new trader you should never add into a position that is going against you. The stop loss is your protection against this. Because you have no idea if the stock will come back. The stock dropped another 50 cents from when you wrote that, and what if some bad news comes out against UAL? The stock will tank even more, just adding more to your losses.

This is the number one way to blow up an account and lose your money.

You need to use stop losses to protect your account. Wouldn't it have been better to stop out, lose whatever you risked, and then have another chance to get back in! You might have even reset your bias and gone short for great profit 🙂

I would suggest watching this video on risk management. As traders, we need to be okay with trades going against us and losing whatever we initially risked.

I know this may sound like tough love, but we only care! Please keep asking questions 🙂

[Ranajit Chatterjee 10]

Thanks Justin. I appreciate it. I am taking this approach because one of the contributor shows in Youtube how he adds the position and it is making averaging the situation. I installed Kyles's hotkey and it was always loss although very small loss. Then i tried adding position without adding stop loss, makes great profit though but still thinking that my strategy will suffer someday and today is the day. Problem in the kyle's hotkey (no offense kyle) i can't add position, if i add i can't sell/cover. Not sure if it is specific to SIM.

For VWAP false breakout what will be strategy, how long i should wait. I waited almost 2 candlesticks for 1 minutes chart, is it not enough?

[Aiman 86]

Your entry breaking premarket high for 1 min ORBU was good; However, once it made new 1 min low after a doji at the HOD I wouldn't have added, in fact I'd have started considering bailing on the trade. Once it broke VWAP that was the key to bail. One thing is to add on a pullback, another thing is averagin when the stock is dropping. Let me know if you got more questions

[Brendon 146]

Hi!  Unfortunately this is VERY risky.

I would leave adding to a position for the more experienced traders who understand how a stock 'may' pullback and to test what levels. If you add properly this can work in some scenarios.

This stock pulled back to test VWAP and gave you a chance to get out at ~b/e. However there is NO guarantee a stock will allow you any pullback to get out. Especially in Trending and MOMO movers. If you're interested in adding to a position, review the setup on the 1, 5, and 15 minute time-frames prior to entering and adjust your stop accordingly because if the setup breaks down on those time periods it's time to fold. 

Let's say you want to risk $50 per trade, if you want to use an adding in strategy your initial entry should be like $15 so you can get 2-3 more adds without blowing your risk out of the water. 

With Kyle's keys you can replace your stop when you add in, and your new stop will be your new position size. 

Remember only ADD IN if the setup makes sense on the larger time-frames and your initial risk was smaller anticipating this possibility. 

Edited May 23, 2020 by Brendon

[Ranajit Chatterjee 10]

Thanks Aiman and Brendan. I would follow your advice in next trade.

[Skye 28]

Yes adding to a position is an advanced move. It's one that I almost never do because I have enough to learn already! What I see about this is that the entry was good but when it pulled back it did it with volume and it dropped below a level. You would never add to a position in that circumstance. When I see people like Andrew add to positions it's when it pulls back with lower volume and then is supported by a level. Indications that it may bounce and then head higher.