Average down - small wins, big losses?

[volpri]

I personally know 2 persons who lost each over 10 million$ ( yes ten million dollars). One in futures S&P, and the other one in Forex. They were both "specialized" in averaging down.

The one in the S&P sold 210 contracts at 250$ a point at 495 in 1995. In 1994 he made more than 1 million profit. When things went wrong he waited till the market retraced and averaged down. But in 1995 it didn't retrace anymore at all. After lots of margin calls his account got wiped out completely. He was lucky because he still had some 3 million on another account that he used for living.

The second one got harmed with a position in Australian dollars that went wrong. The bank closed his position when his account was almost at zero. He was not so lucky, he lost all he had (inherited) and is selling textile now.

They both know what it means when they speak about "catching the mother of all losses".

Specialized in averaging down? Or maybe averaging down is what they just did?

However, as specialized as they may have been they obviousley were not in specialized in risk managment not psychologically prepared to bite the bullet ...swallow..the loss BEFORE it got out of hand and regroup and survive to trade again. Yes, losses can get big averaging down if one is wrong, however, they can also get big with any other kind of trading tactic that fails. And the flip side is the gains can be enormous from scaling into losing positions. That is the uncertainty of the markets. It is how IT IS. We have to learn to deal with it.

The two examples above are in no way a reason to not average down or scale in to a losing position but they can stand as a real lesson on what not to do when attempting to scale in.

There is a genuis in scaling in to losing positions. Most traders cannot see it because they never think through it. And it has to be a deliberate..planned out..thoughtful process..executed with discipline.

Discipline is simply “being responsible to do WHAT you are supposed to do...WHEN you are supposed to do it...and HOW you are supposed to do it..even when you don’t FEEL like doing it.”

Now that is something worthwhile to tape in front of ones trading desk instead of useless things like “losers average down.”

 

[schweiz]

There is a genuis in scaling in to losing positions.

Averaging down is only riskworth if the trend is still in the good direction, so it should be just an adverse temporary move that you misinterpreted

If the trend is not in the good direction anymore you risk alot as the moves in the direction of the trend are always bigger and going faster then countertrend moves. So you will have to react quickly.

Averaging down will make it much more difficult to finally cut your losses if it goes really wrong. And most people cannot do this as they should. Their loss will be too big or they think wishfully to get out as soon as they recover some of the losses. Which often does not happen anymore...

If people take a second position at a better price, they often forget that the profit from this second entry is for part lost in the extra loss of the initial position that went further in the wrong direction at the same time.
If prices drop 3$ you can make a 3$ better entry for the second position but at the same time you lose 3$ EXTRA in your first position.

 

[Overnight]

I'm not going to read the entire thread, but there is a famous picture of Paul Tudor Jones at his desk with a sign on the wall behind him. It reads, "Losers Average Into Losers".

If you don't understand what that means, you shouldn't be trading at all.

Not true. I have been doing that and have made good money. But I haven't been doing it in a "traditional" way. Time is the edge in any market, among other things. But time is the key. Time.

 

[schweiz]

Not true. I have been doing that and have made good money. But I haven't been doing it in a "traditional" way. Time is the edge in any market, among other things. But time is the key. Time.

If it goes so good I suggest you always skip the first signal and take a double position at the first average down. You will make much more money.

 

[Overnight]

If it goes so good I suggest you always skip the first signal and take a double position at the first average down. You will make much more money.

I have a live journal in the journal section. Can brief through it at your leisure. No pressure. Skipping the first signal and doubling down on the second? That is the road to ruin, and not what I am ever on about. Remember, TIME is the edge, man.

 

[ironchef]

Skipping the first signal and doubling down on the second? That is the road to ruin, and not what I am ever on about. Remember, TIME is the edge, man.

Why is it the road to ruin?

 

[Sprout]

Ok bean. A Few live calls using the hersey bar method will clear anything up for the girls in question. The pretty one and the fat lady singing the last song of the concert.

Since you have bean there and done that should be old school for you. Next trading session might be a good time to demostrate for all the Elite and not so Elite traders.

If you have the time, and feel the activity is worthwhile, maybe you can take up your own challenge. There is no perceived benefit for me to do so, it would just entail more work.

I understand your desire for proof and without said proof surpassing your own criteria of judgement, no respect can be given.

I wanted to operate in good faith and give you the benefit of the doubt distinct from the snarky remarks of you just trolling me.

However, your tone is clear.

I accept your lack of respect and validity for my pov.

May you experience all the success you are desiring, deserving and are capable of.

Happy trading to you!


btw, if your looking for pre-market calls, Rickshaw man’s thread is pretty epic. It’s not my style nor fits with my personality but I respect it. He continuously documents the things that you are looking for and highly profitable to boot!

 

[volpri]

If you have the time, and feel the activity is worthwhile, maybe you can take up your own challenge. There is no perceived benefit for me to do so, it would just entail more work.

I understand your desire for proof and without said proof surpassing your own criteria of judgement, no respect can be given.

I wanted to operate in good faith and give you the benefit of the doubt distinct from the snarky remarks of you just trolling me.

However, your tone is clear.

I accept your lack of respect and validity for my pov.

May you experience all the success you are desiring, deserving and are capable of.

Happy trading to you!


btw, if your looking for pre-market calls, Rickshaw man’s thread is pretty epic. It’s not my style nor fits with my personality but I respect it. He continuously documents the things that you are looking for and highly profitable to boot!

Sprout pay me no mind. I don’t disrespect you or your method. Just joking around. One thing you gotta say about Jack Hershey. I never knew him to charge a dime for any info. May he RIP.

Good luck trading!

 

[speedo]

Yeah, well, that girl in the train station after she ditched you approached me and chatting me up. After getting a text, her plans changed and she invited me to hangout.

I really didn’t have an interest in an imaginary girl but she was alluring and even mentioned she was dumping her boyfriend for missing his train.

I had to go, but only after she insisted on making plans and getting my digits.

She says, “I don’t understand. We just met. Why I’m so turned on around you!!? I don’t even know your name!”

I reply, “sorry, I don’t give out my name to pre-stalkers.”

Her, “Stop teasing me!”

After some playful banter, I relented,

“Some call me bean.

bean there, done that, got the t-shirt, and gave it to goodwill. Now go back to your boyfriend, I’m sure he’s a really nice guy, even though he misses the train sometimes, he’s just misunderstood.”