Is order management more important than the trigger in a trade plan? In a way of review, I remind you of the Blue Point Trading three general parts of the trade plan: The Trigger, Order Management and the Filter. Here is an article recently published that describes this – click here. Too many people, as we always say, focus on the trigger as the “Holy Grail” of trading. It is not !!! Order Management is just as important. In this post I would like to provide evidence of scaling in (or adding to a winning position) strategies in order to boost your trading performance.

To start, lets perform a simple trade plan as follows:

• Trigger: 3 closing bars over the 50MA (moving average) on a 10 minute chart. If you get these three bars, trade in the direction of the the three bars. Above the  50MA go long and below the 50MA, go short.
• Order Management: If the price moves 60 ticks over or below the 50MA (on the original trigger bar 50MA price), depending on the direction of your trade, add to the position (doubling the position). The stop/profit target is the current 50MA.
• Filter: If the price is more than 40 ticks above or below the 50MA at the time of the third trigger bar, scratch the trade – as the price has moved too far from the mean.

Note: One could add to this order management strategy with better scale in points and perhaps even scale out points – but for now lets keep it simple.

To test our theory and demonstrate what scale in strategies can do, lets plug the trade plan into the Ninja Trader back tester and see the results – then analyse. First what is the results with no scale in – click here to see the report. Over a month of data (using oil as a test case), it has about a 17% win rate but a few good winners make it a marginal positive trade plan. The trigger is average at best. The trade plan gets chopped during periods of market grind, but then when the market moves your in the big trade. The point here is, that too many people think that an 80% win rate is the goal with a good trigger. 80% win rates are virtually impossible, though many like to tell you otherwise. Its about cutting your losses early and letting your profits run (where have we heard that before?).  Most traders do in fact have a better than 50% win rate, but on the margin its always a few bad trades and the loss of the big opportunity trades that sinks them. Yes they are not doing the math of trading (i.e. proper win/loss and profit/stop ratios).

So what happens when we turn on the scale in part of the order management strategy – click here for the results. What we can see is that our win percentage just moves up marginally to 20%, but the profit more than doubles as we are now taking full opportunity of the big winning trades. You will find this profit improvement to be consistent over other time frames and instruments. Here you can see that an average trigger, but with a simple scale in strategy can make all the difference in being a marginal trader vs. being a big winner.

Is order management more important than the trigger in a trade plan? The answer is yes, when considering scaling entries and exits. If one does not learn how to scale in a winner, it will be hard over the long term to be a successful trader.