Average down - small wins, big losses?

[volpri]

There is no objective way to know a PB is not a reversal. So continued buying in as a PB falls is gambling. Buying in on renewed strength is a viable trade as long as price has not fallen so far as to break down the bullish set-up in the first place. But either way, the important feature is the set-up, not the numerical value of the price, nor the unrealised profit potential / loss potential.

I disagree. There are objective ways. And scaling into a winning position can just as quickly turn into a bigger losing position. scaling in to a winning position does not necessarily mean you have the direction right. If you don't have the general direction right then it can whip back into the correct direction and you can find yourself holding a growing loss or you can exit at BE and suddenly find yourself missing the trade altogether because you just got whipsawed out (and most traders cannot mentally enter right off the bat again in the opposite direction they were just in or even in the same direction they just got whipsawed out of).

So scaling in to a winning position sounds good but is NO guarantee that it is the best thing to do. Especially, when it comes to intraday trading. Maybe scaling in to winning positions makes more sense for longterm investing.

 

[volpri]

The post above that was a quote by dustin above is correct. Somebody knows what they are talking about when it come to averaging down! ROFLMAO

 

[themickey]

I'm a lazy trader in terms of I want maximum dollar returns for least work.
Therefore I consider scaling as work, also I believe scaling dilutes profits.
My strategy which has a high win rate with low drawdowns goes like this:
I like to commit 99% of trading capital to be working, 1% left in the bank.
In the near term future I know what I will be buying, I have approximately 30 stocks which I can choose from in a preselected watchlist of best contenders.
However in the near term future I am awaiting buy signals in 3 indexes which are currently going thru pullbacks, lets say gold, copper, iron ore.
In those 3 sectors I have 15 preselected stocks ready to buy.
As each sector gets a buy signal, I slam in simultaneously all the stocks in that sector so that when all three sectors are long, I have 99% of capital working.

 

[themickey]

Lazy trader - I spend my hours on research, not on trading.

 

[schweiz]

Well if it is throwing darts I been throwing darts for years! Nobody that I know has 100% good entries. They can have the general direction right but just be off a little on their entry.

I'd bet you are too!

Of course I can be a bit off too. Nobody's perfect. It is not about how high the winning % is.
But if I am off 3 points ES I get out. I don't average down. 3 points means the direction is wrong. Many times I already get out (or reverse) before the 3 points are reached as I see very quickly if something is going wrong.
Next step is then: I go short or I go long again on a better level.
Much safer and more money then averaging down.

The sample below shows that you NEVER can beat me with averaging down as long as the PB is bigger then the slippage and commissions.And you will always have a much bigger risk.

 

[tomorton]

I disagree. There are objective ways. And scaling into a winning position can just as quickly turn into a bigger losing position. scaling in to a winning position does not necessarily mean you have the direction right. If you don't have the general direction right then it can whip back into the correct direction and you can find yourself holding a growing loss or you can exit at BE and suddenly find yourself missing the trade altogether because you just got whipsawed out (and most traders cannot mentally enter right off the bat again in the opposite direction they were just in or even in the same direction they just got whipsawed out of).

So scaling in to a winning position sounds good but is NO guarantee that it is the best thing to do. Especially, when it comes to intraday trading. Maybe scaling in to winning positions makes more sense for longterm investing.

You might know something I don't know about there being objective ways to differentiate between a pull-back and a reversal. So what are some of these please?

 

[tomorton]

Can you explain what you meant by set-up?

Thanks.

The best example I can give would be a trend. A pull-back doesn't end a trend. so everything that makes the trend what it is remains in place when the pull-back ends so its safe to get in when the pull-back ends. But not if the trend has ended - its the characteristics of the trend that are key, not those of the pull-back.

 

[ironchef]

Everybody trades what works for them. Averaging down works well for me.

Without revealing your method or secret source, can you expand on the principles and philosophy of why it could work? Are you talking about day trading or swing trade?

I don't day trade but I think adding to losing position for day trader is counter productive. For swing trade, solid companies that are temporarily in the dog house do bounce back, but timing is key.

Thanks.

 

[Sprout]

You might know something I don't know about there being objective ways to differentiate between a pull-back and a reversal. So what are some of these please?

It depends on how you are monitoring market information. Context is a key differentiator.

The easiest to see is the shift in volume demanding liquidity occurring within the shadow of the previous trend. PB’s are within the shadow, reversals starts there and then are categorized depending on timescale of perception. All reversals show themselves on the fastest timescale first as the Dominance of sentiment shifts from oscillating to an offset then back to oscillating but now in a new direction.

Search for the 5x5 grid drill which breaks it down to perceiving the above as ‘legs’ on a bar.

 

[Sprout]

Without revealing your method or secret source, can you expand on the principles and philosophy of why it could work? Are you talking about day trading or swing trade?

I don't day trade but I think adding to losing position for day trader is counter productive. For swing trade, solid companies that are temporarily in the dog house do bounce back, but timing is key.

Thanks.

It depends on context. A position that is a losing one but is increasing favorably from the point of max drawdown is distinct from a losing position that has not achieved an informative level of support/resistance in the OOE.

What one uses to establish a fundamental perception of value is not as straightforward as one would expect. Estimates are as close as speculators can get. Estimates are varied, a mix of the un-informed and informed.
The discernment necessary to know the difference is as close to a ‘holy grail’ as one could train themselves to perceive.