Quote from The Swordsman:
I think whats getting in your way here is YOUR definition of avging down and avging up, which is one dimensional like someone else pointed out. Just b/c you associate avging down with buying dips against a major trend doesnt make that the only definition. If price ticks one tick down and I buy, I am avging down even if the trend is up intraday, you gotta think of all the possibilities before saying that avging down is just plain wrong.
Averaging down one tick is not what I would call bad trading.
But I would still classify it as inefficient.
If one chooses the averaging down route, one has to put a position on one piece at a time. If one trades 5 ES at a time, and expects a need to average down a max of 4 times, then one can put on only 1 ES initially.
If the trade immediately goes in the favor of the trader, there is obviously no additional need to average down. But if that happens, one's exposure is less, because one was saving capital in case there was a need to average down.
In other words, with averaging down, one is ensuring less exposure on the inevitable winners that take off immediately in the right direction and never look back.
But all trading systems/approaches have inevitable losers, and by averaging down, one is ensuring greater exposure during these times.
If one has a winning system/approach, it makes the most sense to go all in at once, not piece by piece.