add to a losing positon

Quote from mschey:

Everybody can point to the stories of the blow ups, have you ever taken the time to research those who have success with the strategy? My guess is probably not.

Adding to losers, or averaging in, or whatever symantecs you want to use to referenece the strategy has both a time and place that it works well. The "herd" on here is strongly against the notion of adding to losers, I humbly submit that I will be taking the opposite position and continue with my practice of averaging into my losers. :)

Good trading to all!

Mike
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People who take their losses quickly cannot really blow up. They may fade away if they are not very good, but they seldom go down in flames. They cannot attribute their failure to a handful of trades (or even one really big one).

To use your term, I would think that adding to losers only has a "time and place" if you know what is going to happen with a fair degree of confidence. However, if that were the case, then how do you end up with a losing position in the first place?

Let us agree to disagree. I wish you well.
 
Along the same lines as spike500's post:

I read in a book that instead of adding to a loss it's better to go flat and re-evalute your position then, because it lets you think from a neutral psychological position. It's hard to think straight when you have a paper loss weighting on you, and easy to try to rationalize it away. Once you make it a real loss you can put it behind you and start afresh. Not my idea, but I think it makes perfect sense, and have integrated it into my trading...
 
Quote from Thunderdog:

People who take their losses quickly cannot really blow up. They may fade away if they are not very good, but they seldom go down in flames. They cannot attribute their failure to a handful of trades (or even one really big one).
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Simply untrue, the worst blow ups happen overnight, and there is nothing anyone can do to prevent this type of loss. You wake up in the AM and realize that your position is $15 against you at the open. These are the trades that put traders out of business!


One important note, I am not advocating never taking a loser, I am trying to point out that losers can be managed and traded around, allowing the trader to maintain his position and make his money back.
 
Quote from spike500:

Yes i took the time and i my conclusion was: if i close my bad entry and reenter later on at a better price i have two advantages:
first: i don't have the risk that you have while the quotes are going in the wrong direction; you are never sure that the quotes will revers in your advantage and you surely don't know when that will happen
secondly: taking a small loss and reentering will give a better total return with less risk

What do you mean by averaging your loss? If you lose 1000$ on a bad entry, you cannot recover that loss by taking a second position. The loss stays. I would cut the first loss and take the two positions at the second entry. My total profit will always be higher, and the risk will be smaller.
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I can make trades based upon my research and put the probabilities on my side, as for your better return with less risk argument, just doesn't add up. Risk is risk, if you are in the market you are assuming market risk.

Second, trading is about making money. I could care less about the results of any one individual trade, I only care about the ultimate outcome, and that is did i make money. That is overall, did my strategy produce winning results. Today, I bought NEM and ABX at the open, they cost me about $700, however, my other trades more than compensated for these losses, and my day was worth a little over $2000. A nice day, and about par for the course.

Third, if you are cutting your position and getting back in then you are trading my friend, which is exactly what I am talking about. Most traders exit the position, bank the loss, and move on. I am a strong advocate of working around that losing position and not throwing in the towel so easily. Dumb money simply takes a blind stop IMO.

Good trading to all! I'm off for the weekend.

Mike
 
Quote from OddTrader:

Sometimes only the markets can change the minds of traders. :confused:
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Most of them couldn't understand why they were wiped out. They are not traders but trader's money suppliers. Their faces:Big account opened:D :eek: :mad: :( :confused: account closed:confused: ......:p trader:Thank you. Any more?
 
Guess I'm in the minority here but I sometimes average into losing positions. My largest losses have been on after hours news, not from averaging in. Of course I have had some nice gains on news as well.
 
It's really whatever works best for the individual. I agree with mschey, though... sometimes it's just stupid not to.

If you trade equities, a lot of time the liquiduty just isn't there to get out and by the time it stops moving (most times pretty quickly) it's usually signaling another entry. If you would've marketed out, most of the time you're selling at or near the low and reentering at a worse price. So in that situation, if your assessment of liquidity away from you is strong and you're within your risk parameters... you just double up and scratch the loss, or if it really moves you can score nicely.

Although in markets like the other day with the suprise GM announcement, you can get your ass handed to you. That's why it's very key to know when you can do it and when you should just get the hell out. Definitely not a beginner strategy.
 
To mschey:

Mike, i think we should not focus on 1 special case, but discuss the general rules for trading. I believe that you trade well but therefore it doesn’t mean that this is the way to trade in general.
I will give an over exagerated sample: my senile grandfather of 115 cannot turn his head anymore due to calcinations, he doesn’t hear anymore and barely sees where he walks. He drives a car and made no accidents the last 2 years. My brother however is 42 and in perfect condition. He has 1 accident every three years, on average. So people with the condition of my grandfather are always better drivers than people like my brother?
No, in general people aged 42 will be better drivers than people aged 115.

To me it is clear that your way of trading can be profitable for some; but the biggest part of the traders will benefit more from what I ( and others) say.

Mike, you said:
“Simply untrue, the worst blow ups happen overnight, and there is nothing anyone can do to prevent this type of loss. You wake up in the AM and realize that your position is $15 against you at the open. These are the trades that put traders out of business!”

My answer:
These moves happen for 90% to people who trade against the market as you do, not to people that follow the direction of the market. I have never heard of someone wiping out an account while he was following the trend. Big losses always come with big moves; and big moves always go in the direction of the trend; that’s how the trend is formed.

Mike, you said:
“I can make trades based upon my research and put the probabilities on my side, as for your better return with less risk argument, just doesn't add up. Risk is risk, if you are in the market you are assuming market risk.”

My answer:
Indeed, risk is risk; but all risks are not equal. The fact that some people make lots of money and most don’t, is the ultimate proof that you can manage risk, and that risk is not always the same, or in other words that you see different degrees of risk, which means that risk isn’t always risk as you say.

Each different tick has a different risk; due to the difference in pricing and the difference in timing.

Although we differ in opinion I’m glad we can discuss this in a civilized way.
 
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