Adding to Losing Position or Averaging Down Cost ?

[Cutten]

I add to losers under the following conditions:

i) If I was flat, I would want to enter at the current price with a larger than normal position (which requires the market to be offering an unusually favourable trading opportunity)
ii) Adding to the loser will not increase my position size beyond my risk limits
iii) I am sure that my judgement is not affected by having suffered an initial loss
iv) I don't think I can exit and then re-enter at a better price

It is quite rare for all these criteria to be met. When they are, usually it is a relatively small loser on a slightly premature entry, which has now started to bounce back.

 

[Master Pu]

Doesn't make sense, unless you scale into winning trades too.

 

[Bad_Badness]

Doesn't make sense, unless you scale into winning trades too.

Actually it can. There are Win-Loss and Scratch. A lot of people do not use the Scratch category of trades enough imo. It might be the result of ego. They have to either be right or wrong. But a Scratch trade is another "wrong" with a benefit of you can get a new entry.

To be clear adding for a scratch can be such that:

• Your initial entry is actually a fraction of your actually working size.
• It allows you to take more aggressive entries and get a position when the trend is moving fast
• If it is pausing more than you thought or you start to see a change (reversal), you can "buy" down, and exit at scratch while still well within the consolidation range. You don't stay long or "change your mind" a bunch of times.

All these are pretty advanced and I DO NOT recommend them to most people, because if you truly understand how to use them, you would have built them into your system or not. And you would have tested it A LOT, and practiced it A LOT. This is not something you read here, and go try right away.

I do not scale into winning trades day trading. If the trade is that good, I can ride the waves and have a higher confidence (in the beginning) of the trend and get a multiple of high percentage trades that are above expected gains*. Also I can adjust entries and exits as the wave progresses thereby adjusting risk. Also I like to avoid a larger player "dumping" big size and the risk of another big player following on, and another, thereby quickly putting me in an unfavorable position with scaled up size. Those move, as a retail trader, are very hard to react to because I believe the are algo triggered.

* I will upon initial entry double or triple size if the trade has the right parameters. Thereby taking on more risk initially which will be counter weighted by the "goodness" of the trade setups expectation. There are many types of risk and they need to be crossed applied and balanced, not isolated or "siloed".

 

[Master Pu]

Actually it can. There are Win-Loss and Scratch. A lot of people do not use the Scratch category of trades enough imo. It might be the result of ego. They have to either be right or wrong. But a Scratch trade is another "wrong" with a benefit of you can get a new entry.

I do not scale into winning trades day trading. If the trade is that good, I can ride the waves and have a higher confidence (in the beginning) of the trend and get a multiple of high percentage trades that are above expected gains. Also I can adjust entries and exits as the wave progresses thereby adjusting risk. Also I like to avoid a larger player "dumping" big size and the risk of another big player following on, and another, thereby quickly putting me in an unfavorable position with scaled up size. Those move, as a retail trader, are very hard to react to because I believe the are algo triggered.

When you add to a trade that you consider to be a losing trade, this shows weakness. Plus, unless you also add to a winning trade, mathematically doesn't make sense.

 

[Bad_Badness]

You are thinking in a linear fashion and in theory. Staying in the rhythm of the movements is more important, IMO. I never said it was a "loosing trade", it is not a loosing trade until you take a loss. Ditto for a "winning trade". The fundamental importance of this concept cannot be overstated.

But you seem pretty sure of yourself, so I will not try anymore to "convince" you or argue. That would be a disservice. I stated what I thought about the well beaten topic, and what I have found to work for me and my systems. Also what DOES NOT work in several system.

Notice I also stated it is something you need to develop and incorporate into you strategy and tactics. A lot of systems would not accept such methods. Sounds like your is one of them since it goes against your paradigm-concept of "weakness" and correct " mathematics* ".

IMO Trading is more like hand to hand death combat with ULTIMATELY, no rules. Rules are only parameters to work around and finesse. Sticking to them at all or high costs, *might* not be the best idea.

This is an example of "thinking and the box". One of the things is, all those that think inside the box are targets of the "educational" hucksters, who, IMO, are lining up traders to be picked off by the pros. The pros need the box so they can have a target group for "bread and butter", because going against each other is whole another deal.

Best of luck.

PS: This whole discussion is not even addressing MAE, which is really the heart of the matter. It is more like someone talking about a single trade, which is not even in the ball park of relevance for a system with defined tactics.

* The mathematics referenced here seems to be algebra. There are a lot of other mathematics that apply. I would suggest among many: statistics, and model theory.

 

[Master Pu]

You are thinking in a linear fashion and in theory. Staying in the rhythm of the movements is more important, IMO. I never said it was a "loosing trade", it is not a loosing trade until you take a loss. Ditto for a "winning trade". The fundamental importance of this concept cannot be overstated.

But you seem pretty sure of yourself, so I will not try anymore to "convince" you or argue. That would be a disservice. I stated what I thought about the well beaten topic, and what I have found to work for me and my systems. Also what DOES NOT work in several system.

Notice I also stated it is something you need to develop and incorporate into you strategy and tactics. A lot of systems would not accept such methods. Sounds like your is one of them since it goes against your paradigm-concept of "weakness" and correct " mathematics* ".

IMO Trading is more like hand to hand death combat with ULTIMATELY, no rules. Rules are only parameters to work around and finesse. Sticking to them at all or high costs, *might* not be the best idea.

This is an example of "thinking and the box". One of the things is, all those that think inside the box are targets of the "educational" hucksters, who, IMO, are lining up traders to be picked off by the pros. The pros need the box so they can have a target group for "bread and butter", because going against each other is whole another deal.

Best of luck.

PS: This whole discussion is not even addressing MAE, which is really the heart of the matter. It is more like someone talking about a single trade, which is not even in the ball park of relevance for a system with defined tactics.

* The mathematics referenced here seems to be algebra. There are a lot of other mathematics that apply. I would suggest among many: statistics, and model theory.

You'll realise that I'm correct when some trades keep going against you & you keep holding the bag, hoping market will turn in your anticipated direction, yet your winning trades will only generate return based on your initial size. If you are investing it's one thing, trading is different. When you're wrong, you are wrong. If you consider a trade to have qualified to be a loser set by your own standards, then drop it & find another opportunity. Unless you have a crystal ball.

 

[Bad_Badness]

Sounds like the "Master" has it figured out and is "right" for him, which appears to be the main objective, and another to the ignore list for me.

But to everyone else my points are qualified and stand, with possibly more qualifications . As always, choose what works in your system and Test under all possible conditions. You decide because you live the the consequences.

"In theory there is no difference between practice and theory, but in practice there is." YB

 

[Master Pu]

Sounds like the "Master" has it figured out and is "right", which appears to be the main objective, and another to the ignore list.

But to everyone else my points are qualified and stand, with possibly more qualifications . As always, choose what works in your system and Test under all possible conditions. You decide because you live the the consequences.

"In theory there is no difference between practice and theory, but in practice there is." YB

You do like the sound of your voice dude, whatever.

 

[Master Pu]

I used to average extensively when I traded for a huge energy desk - but we had exact price bounds we were dealing with. In other words, I was only too happy to make or take delivery of many many many NYMEX or OTC contracts at certain price points. I rarely did, but our trading positions reflected a strategy by the Company regarding our cost of business. Our dynamic hedges became fantastic long-term trades - if they didn't, we executed the underlying because we could live with the cost at that price.

Flash forward years later - as an individual speculator, I have no cost of doing business (unfortunately-Sigh, what an edge that is!). Just pain and pleasure points. What am I willing to risk and at what price poitn and timeframe.

There you go Bad_Breath, perhaps listen to others.

 

[Master Pu]

Fear is one of the most powerful emotions & since emotions are more powerful than thoughts, they can override common sense aka logical thinking. Abusing leverage will almost always trigger the emotional part of a human brain. This is why majority of traders are set to fail.

Enjoy your morning coffee & have a great day!