That, to me, seems more like what the OP is doing. Where was your initial stop on the trade?
Average down disaster
- Thread starter innovest_11
- Start date
Didn't put any stops. Just started to average down on dips since Oct. 10. Last two days I made a ton. Am waiting for the next dip. The hypothesis is:
1) With government spending and Reserve monetary policy getting into place, there is a floor to the market.
2) If the market tests again, I am ready to buy heavily. I have plenty of reserves.
3) I have enough reserves, even under worse case scenarios ... e.g. DOW 6000. The lower the better, but unfortunately it will not get there.
It is nice to have great days like the last two days, but it is also nice to get those Short dips, when I can really scoop up the Ultras cheap. Either way I am a happy camper. Lots of money that I have to put into play ... but I know there are elephants out there with tons of money on the sidelines, so I have to get in pretty quick before the market gets away from me.
Scaling out and scaling in is necessary those times when you are turning around your postion at a gyration top area or a gyration bottom area when pace and/or liquidity-at-price is insufficient for your position size.
However 'averaging down' is bad arithmetic as a buying tactic. If you do it, you must learn not to do it anymore and move to where you have a mindset thats never tempted to trade that way.
Quote from Cheese:
Scaling out and scaling in is necessary those times when you are turning around your postion at a gyration top area or a gyration bottom area when pace and/or liquidity-at-price is insufficient for your position size.
However 'averaging down' is bad arithmetic as a buying tactic. If you do it, you must learn not to do it anymore and move to where you have a mindset thats never tempted to trade that way.
I think everyone needs their own strategy based upon their individual goals. For me, I don't want to make it too complicated. This market will go up, because of the massive infusion of money and Fed monetary policy. There is just way to much money on the sidelines. And I have time and reserves. If I lose my shirt, I will let you know. But, under the worse case hypothesis, I still make a very nice return, as long as there is some upward retracement past my breakeven point before the next Bear cycle. The key for me is time and reserves. We shall see.
I guess you were doubling or tripling your position size on each dip because if you had been averaging down since October, the last 2 days wouldn't have been anywhere near enough of a pop to get you to break even.
You know this for sure?
Not really. Just calmly placing trades on major dips. Pretty irregular - but smart. I don't over commit because I leave open the possibility that I am wrong and that the market may dive. I am way past break even at this point, but I think I will go red again, during the next few days, as a pullback is inevitable. I will buy more when I see volume dry up and the elephants begin to stampede again. Up or down, I am buying based upon price/volume action. But I am not guessing, just watching and playing the action.
RTM is a very profitable strategy especially in a mkt like this. but one cannot do this strategy unless they got enough capital to overcome the heat. as in many things in life, having lots of money makes trading a bit easier.
That is what I kind of figured out. I wasn't in the market until Oct. 10, so I have plenty of dry powder. I always consider the fact that I can be wrong, so I don't chase new highs, just cover myself against possible downturns and I make sure that I can cover the worse case. For a while I thought I would pick up so extra cash using Puts, but I think I will do better picking my own buying opportunities based upon actual price/volume action. I'm studying some option possibilities and I'll see if I can come up with anything that can add to the coffers. Any ideas would be appreciated.
Elder says do not average down. Whether there is a "context" or not.
what follows is a loser's feeling, by Elder. Loser trades make love with blind hope. This is a level of nub we are talking about, not a trader. Nub is no trader by definition. If blind hope is a disease down below there is a cure.
I could make a large poster to see it always above my laptop. So could u) If u thought u'd realise that it was the key to success.
IMHO & FWIW
My Rules
1.) I will never average down - why add to a loosing position
2.) On a long - I always want to add to it by paying higher prices
3.) On a short - I always want to add to it by selling lower prices
I realize this is completely couterintuitive but it will save , and ultimately make you money in the long run
Take Care
My Rules
1.) I will never average down - why add to a loosing position
2.) On a long - I always want to add to it by paying higher prices
3.) On a short - I always want to add to it by selling lower prices
I realize this is completely couterintuitive but it will save , and ultimately make you money in the long run
Take Care