Responsible addiction. Now there's a contradiction in terms. Like every other type of addiction, it's fun till it ain't. It works till it don't and when it don't, expect max pain.
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Averaging down is addictive
- Thread starter Neet
- Start date
"Life goes on. It always does, until it doesn't. But you know that..."Quote from CaptainObvious:
Responsible addiction. Now there's a contradiction in terms. Like every other type of addiction, it's fun till it ain't. It works till it don't and when it don't, expect max pain.
-Sydney Pollack
I look at my second entry as an add on not an average down to a losing trade. Basically, it trades to my zone so I get most on but when it busts to my add on range I know I am getting the best bang for my buck. So i can double up with a very tight stop and get the best risk for reward. You can always trade a conservative entry but you will miss many profitable trades. Do lots of backtesting with how you trade to determine if this will work out for you over the long run, 600+ trades. It does for me because I always manage my risk and always know when I am wrong so I can adjust the size to accomodate my zone. Most people are not accurate enough and have the discipline to follow this principle. Do the backtesting and put in some screen time...... you will be rewarded.
Its amazing how people think they can get rich doing one of the hardest and most competitive jobs in the world overnight, yet it takes years and years of studying and practice to become a doctor or a pro athlete.
Its amazing how people think they can get rich doing one of the hardest and most competitive jobs in the world overnight, yet it takes years and years of studying and practice to become a doctor or a pro athlete.
Basically what you're wondering is whether it's a good idea to have more on with your bad trades than with your good trades. In other words, if the trade starts right out going your direction, you have no opportunity to "average down". Therefore you have fewer shares on with your successful trades. It's only with your unsuccessful trades, the ones that move against you, that you add to your position. Lousy idea in my opinion.
That said, I rarely put all of my position on at one time. The reason for this is that in my early days my attempts to pinpoint my entries resulted in missing trades. Therefore, I put part on, see how it goes. Sometimes I can put more on at a better price. Sometimes I add as it goes in my favor. Depends. But when I put part of a position that moves against me, and does all the wrong things, I just get out. I don't add to it trying to make something work.
I mostly trade futures (ES) by the way.
OldTrader
That said, I rarely put all of my position on at one time. The reason for this is that in my early days my attempts to pinpoint my entries resulted in missing trades. Therefore, I put part on, see how it goes. Sometimes I can put more on at a better price. Sometimes I add as it goes in my favor. Depends. But when I put part of a position that moves against me, and does all the wrong things, I just get out. I don't add to it trying to make something work.
I mostly trade futures (ES) by the way.
OldTrader
What oldtrader says is right.
My version is "if its part of a tested plan then its good." So, if to get the right risk reward and/or to get enough contracts without messing the market up you need to scale in then do so. If you're doing it because the market isn't doing what you expect then don't.
Someone said on another thread that intraday markets are noisier than interday. I don't know if they're correct but that noise is what lets you fill your position at a good price.
My version is "if its part of a tested plan then its good." So, if to get the right risk reward and/or to get enough contracts without messing the market up you need to scale in then do so. If you're doing it because the market isn't doing what you expect then don't.
Someone said on another thread that intraday markets are noisier than interday. I don't know if they're correct but that noise is what lets you fill your position at a good price.
Interesting thoughts. I trade ES as well.
I have some fundamental problems with the risk reward in averaging down.
My main problem is that you end up with an average price that you're looking to scratch or make a little on, and the downside is a total blowout. The risk reward isnt there.
I try to time my entries such that no more than 3-4 ticks of heat will prove me wrong. If I'm wrong, I'd rather just fold the position and reenter at a better price than play around with averaging.
When I started daytrading, I used to average down. I'd have up days of like $300 then blowout days of $2500.(simulated money....not trading live yet). It seems the averaging will bite you in the ass given enough time. All you need is one trend day and you're done.
The downside is just too great for daytrading, IMO.
Just my thoughts.
I have some fundamental problems with the risk reward in averaging down.
My main problem is that you end up with an average price that you're looking to scratch or make a little on, and the downside is a total blowout. The risk reward isnt there.
I try to time my entries such that no more than 3-4 ticks of heat will prove me wrong. If I'm wrong, I'd rather just fold the position and reenter at a better price than play around with averaging.
When I started daytrading, I used to average down. I'd have up days of like $300 then blowout days of $2500.(simulated money....not trading live yet). It seems the averaging will bite you in the ass given enough time. All you need is one trend day and you're done.
The downside is just too great for daytrading, IMO.
Just my thoughts.
You would think averaging down at different ends of volatile stocks would pay off. Of course, this is all I theory that I need to test on paper.
I have noticed that stocks have different behaviors. Some are more conservative, some are absolutely wild, some rarely move and when they do they move is in huge spikes, some tend to do a lot of fakes, and so forth, you get the picture.
According to most of you it's not going to work no matter the situation.
Maybe it's time I let go of this intransigence of mine and start taking my losses like a man, keeping them tight, and letting the winners run when I am right.
Thanks for all the input, it's appreciated.
I have noticed that stocks have different behaviors. Some are more conservative, some are absolutely wild, some rarely move and when they do they move is in huge spikes, some tend to do a lot of fakes, and so forth, you get the picture.
According to most of you it's not going to work no matter the situation.
Maybe it's time I let go of this intransigence of mine and start taking my losses like a man, keeping them tight, and letting the winners run when I am right.
Thanks for all the input, it's appreciated.
On balance, and with few exceptions, I think that averaging is like driving faster when you're lost.