Addicted to Average Down?

Keepin it real...

Today I averaged in – and it bit me square in the ass

I did it, I’m responsible, no excuses

Please feel free to bust on me if you are so inclined




For those who’ve been trading for awhile – you can pretty much guess where price ended up – and where I exited (and if you can’t don’t ask because woulda, shoulda, coulda will never cut it in trading)


For the newer folks – In one post in this thread you saw me get away with it – in this post you’ve just seen me lose.

Please don’t try this - at least (if ever) until you get some experience under your belt and fully understand the damage it can do – There is no quicker way to blow up your account that I know of



Now please excuse me whilst I go remove my head from my ass and clear my mind… I am pretty disgusted with myself… and tomorrow I have work to do


Regards

RN
 
Quote from Scataphagos:

You apparently don't understand the reason for not averaging down... some day, you will.
More...

I don't average down. I haven't averaged down on a trade for a long time. I learned my lesson as a short term trader.

However, as a long term investor, I can see situations in which averaging down would be acceptable. For one thing, long term investors generally diversify and do not hold positions on margin. This makes it whole different ball game than day traders and swing traders averaging down.

IMHO.
 
Personally, I believe the answer to this thread lies in the following passages from christianhgross dated 1/22 4.48, 1/23 9.59 and 10.02, 1/23 10.24 and 1/24 6.24.

Not being unkind or insensitive to anybody else's' opinions, but the answer becomes obvious that there are a core set of rules to trading ..

1. Have a plan

2. Money management strategy and adequate funding

3. A steel trap mind to trading and using the above rules without deviation.

2 out of 3 ain't gonna cut it.

'Christianhgross" ' s educational and disciplined professional background provided a leg up that very few have attained ; hence his approach to trading...all in his quotes referred to above..

My bet is that he is a frugal person , and as others would refer to him as being as "tight as a fish's arse when it comes to money'...

But people.... that is what it takes to be a successful trader/investor and I sincerely hope that we all benefit from his contribution.

One succinct point that may have been overlooked by many....20 to 45% a year is all that he is looking for....not pie in the sky returns...

Bottom line...you should never try to average down at home unless you are qualified under 1...2...and 3.


NiN
 
After clearing out the dust – moral of the story today

I must not have an opinion, but when I do (and at times I will as I’m only human) – I must hold it weakly, and relinquish it readily

When trading – I must always be right – when I’m not right – I must exit and get right

Simple lessons I ignored…


Tomorrow we trade, not out of revenge, spite, greed or anything else – it’s just business


Respectfully

RN
 
RN,

Sorry to hear about your bad day, lucky for you I'm sure the market tomorrow will open and you will have a better day, you just wait and see :)

My username says it all, my goal in trading is no heat entry techniques that way I can determine immediately if I got it right or wrong since any kind of heat will invalidate it. Not an easy task but not impossible either as I've begun to witness some potential entry techniques.

As far as investing I believe predetermined gradual entries using solid diversification without going above your max position/risk is the way to go, although I would not consider that averaging down more like dividing entry so you can avoid buying tops or market reversals from the start.

No Heat
 
"Cramer suggested investors start buying stocks in smaller increments than they otherwise would have. He said using the dips to cost average down would also be a prudent move."


See? Cramer says we should start averaging down off a 60%+ run as the bull trend lines are breaking down and we're now making lower highs and lower lows.

So it must be OK. Right?
 
Quote from Scataphagos:

Amazing how you could come to such a conclusion.

If you were to take a poll of long-time investors who manage a significant amount of money (especially their own)..... it's likely the result would be more like, "it's NEVER acceptable to average down"...
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Scataphagos, (btw, does your name mean voracious feces eater or does it have something to do with Mr Crothers?), I’m amazed that you’re amazed.

I don’t know enough long-term investors to disagree with you, but let me drag Cutten into the discussion. Here is a post of his from April 2008:
“It's investment. That means that any kind of technical analysis, trading, chart-reading, big betting and so on is out; adding to losers (within reason), buy & hold, following valuation instead of price is in. Forget your trader side when discussing this subject. Investment requires either a decent lump-sum, or regular contributions from income until your portfolio becomes a decent lump sum.”

My own views about investing have changed drastically since April 2008, perhaps his have too.

I had hoped to entice someone to say something like “Averaging down while investing is acceptable so long as your initial investment idea has not been invalidated”. At the time I was thinking that the same argument could be extended to the short term trader who is able to make sound decisions on the fly. But to be honest, I have not yet made up my mind about the validity of averaging down either in trading or in investing.
 
Quote from NoDoji:

"Cramer suggested investors start buying stocks in smaller increments than they otherwise would have. He said using the dips to cost average down would also be a prudent move."


See? Cramer says we should start averaging down off a 60%+ run as the bull trend lines are breaking down and we're now making lower highs and lower lows.

So it must be OK. Right?
More...

And here is an example why average down gets such a bad reputation! For f***s sake you don't average down on a 60%+ run. That is just pure lunacy! Unless of course I have an infinite account.

Regarding stick to one's rules... Yesterday it happened to me. X gapped down to just at the cut off point before market hours. I was loathe to exit the last bit of X, but I did it. It was a prudent decision since I exited at 53 and a couple of dimes above.

Could X bounce back? Yesterday Guy from Fast Money said that X might be attractive here.Maybe, but looking at their earnings report and their reason for crying I am a bit skeptical.
 
Quote from NoDoji:

"
See? Cramer says we should start averaging down off a 60%+ run as the bull trend lines are breaking down and we're now making lower highs and lower lows.

So it must be OK. Right?
More...

I of course think Cramer is a media clown but I'm not so sure the 60%+ run has anything to do with buying high. From another stand point we have recovered about half the territory we lost. Using that perspective I feel like we are more like in the middle and if it continues well, you would see a major recovery fly by your eyes and miss opportunity because your mind thought it was "too high".

No Heat
 
Quote from No.Heat:

I of course think Cramer is a media clown but I'm not so sure the 60%+ run has anything to do with buying high. From another stand point we have recovered about half the territory we lost. Using that perspective I feel like we are more like in the middle and if it continues well, you would see a major recovery fly by your eyes and miss opportunity because your mind thought it was "too high".

No Heat
More...

Goldman Sachs playbook a couple weeks back said S&P to 1300 by mid-year. They must know, they're Goldman Sachs, right? I mean they sure had X pegged mid-month with a conviction buy and a $72 target.

All kidding aside, I'm just day trading right now. So it doesn't matter to me if the market's up or down, as long as I catch a piece of its moves.
 
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