In general, I wouldn't. The only situation would be if you know you entered too early on a trendline break and you realize it , but your overall signals are still valid. Then you can take another position on the weaker retest (i.e. a right shoulder , double bottom etc). You will have to know when your trend signal has changed though, and get completely out.
Adding to a losing position..right or wrong?
- Thread starter EqtTrdr
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In general, I wouldn't. The only situation would be if you know you entered too early on a trendline break and you realize it , but your overall signals are still valid. Then you can take another position on the weaker retest (i.e. a right shoulder , double bottom etc). You will have to know when your trend signal has changed though, and get completely out.
5 - Do not let a winner turn into a loserQuote from inandlong:
That makes four axioms for the record:
1 - You will lose
2 - You will leave money on the table every trade
3 - Cut your losses quickly
4 - Do not average down
As far as number 4 goes, if you are averaging down, this is widely regarded as a bad idea. However, if your trade involves scaling in then it is a pre-determined strategy with a pre-determined stoploss and does not qualify as averaging down. Averaging down is a reflexive decision, not a planned one.
It might be better to reverse a losing position as rule, who knows? There is no statistical test for randomness but to me its fairly plain that highly liquid markets are pretty random, in all but possibly the long term. If random then very difficult to trade successfully using any technical rules. There are no studies I know of which even confirm whether the 5-20% that seem to win in a given time period are consistent winners over the long haul. In short, most with any experience would say its a very tough game with no easy answers for winning. Not saying its impossible for one trader to be better than another.
Many traders average their basis by adding to a losing position. I don't agree with it, neither do many, if any published trading experts.
However, adding to a position has nothing to do with a time machine. Does your broker reflect your portfolio as separate positions for the same stock? No! It reflects one position. Adding to a position that is moving in your favor is commonly done.
As far as separate entries and exits, with Cybertrader for example, you must specify whether you want positions closed as LIFO or FIFO. So in your strategy damir', while you might think that you are closing out the first trade, you might actually be closing out the second.
Technically, you are accurate.... except for the time machine thing.
a position is a combination of entry/exit/etc. unless you have a time machine you cannot replicate the same conditions. it isn't "adding" to a position, it is a separate position that happens to share a ticker symbol and a direction.
this isn't nitpicking. understanding the distinction - really understanding in a shake-your-bones kind of way - is an incredibly eye-opening experience.
Bolts the max % would be reduced yes, perhaps making the trader feel better, but the dollars lost... which when paying the mortgage is all the matters
.... is increased.damir' I don't disagree at all with your statement that each trade should be taken on its own merits. You are exactly right imo. But the common perception is that one is adding to the original trade and averaging the basis for the sole purpose of reducing the breakeven point. Again though, placing each trade on its own merits is the right way to go.. as you said.
I think if I were playing with a few million dollars, averaging in would be the best way to trade.
-FastTrader
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