Averaging Down the real Holy Grail

How about this,

Build a position rather than averaging down
and scale out, BUT and BIG BUT, ALWAYS ALWAYS
have a total stop loss either with price level or with
a dollar amount.

I will do other conversations on trading as well as setups but check out the 5 that I have on you tube if you want

http://www.youtube.com/profile?user=TradePilotPro

I will soon be doing a daily one on price levels and value
areas for anyone who wants the info as well as break out areas

Just hit the subscribe and you will automatically get a e mail
letting you know when it is posted in the morning.

Try to remain calm when trading it will help.

Take Care,


Joe B.
 
Quote from smilingsynic:

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.
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Come on, King: overcome this objection. :)

If I am wrong in my thinking, please correct me.
 
Quote from Avgdownking:

Found the resistance I was looking for.
Now, let's wait for some pseudo panic to do it all over again at support.

ADK
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Not for nothing, he absolutely nailed the early drop on Wednesday.

If he has a system, he doesn't actually have to prove anything, he just needs to trade it.

Good trading,

JJ
 
Quote from Avgdownking:

Typical newbie concept thinking averaging down is an inevitable blow up.

Risk management and averaging up are not mutually exclusive.

ADK
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Averaging down WITHOUT stops and WITH excessive leverage = inevitable blow up

Averaging down WITH stops = inefficiency
 
why would you post a bogus equity curve for us, instead of your equity curve? Or, at least a mock up of a real equity curve?

why haven't you laid out a specific plan for dealing with the heat, as other people in here have inquired about it?

since you learned this at a prop firm, why haven't you specified the account size you need to make this happen, since others are speculating about it?

why are you focusing on averaging down instead of scaling in?


In short, there are unanswered questions, and that equity curve you posted is not real. I could never follow this anyway, but I have a hard time taking this seriously at all...
 
Quote from xiaodre:

why would you post a bogus equity curve for us, instead of your equity curve? Or, at least a mock up of a real equity curve?

why haven't you laid out a specific plan for dealing with the heat, as other people in here have inquired about it?

since you learned this at a prop firm, why haven't you specified the account size you need to make this happen, since others are speculating about it?

why are you focusing on averaging down instead of scaling in?


In short, there are unanswered questions, and that equity curve you posted is not real. I could never follow this anyway, but I have a hard time taking this seriously at all...
More...

An equity curve does little to nothing to defend the strategy. Simply put, if a trader has a winning system/method, averaging down guarantees mediocrity.

When a trader enters a position, there are five possible outcomes:

1. Large move in favor of the position (big winner)
2. Small move in favor of the position (small winner)
3. Little movement in favor or against (breakeven)
4. Small move against the position (small loser)
5. Large move against the position (big loser).

Even an outstanding trader has to accept the inevitability of 3, 4, and 5. Indeed, sometimes there is no oil in the well, for it is dry. However, one must move on, and keep drilling, seeking wells that may prove themselves full of potential.

In order to have the reserve capital with which to average down, a trader's initial position must be small. It is impossible to go full size and average down; a trader cannot have it both ways.

If one averages down, one is guaranteed less exposure for situations 1 and 2, and more exposure for situations 4 and 5, EVEN IF ONE USES STOPS.

If anything, outstanding traders should do the opposite of averaging down and average UP (scale up).
 
Quote from smilingsynic:

...

When a trader enters a position, there are five possible outcomes:

1. Large move in favor of the position (big winner)
2. Small move in favor of the position (small winner)
3. Little movement in favor or against (breakeven)
4. Small move against the position (small loser)
5. Large move against the position (big loser).

Even an outstanding trader has to accept the inevitability of 3, 4, and 5. Indeed, sometimes there is no oil in the well, for it is dry. However, one must move on, and keep drilling, seeking wells that may prove themselves full of potential.

In order to have the reserve capital with which to average down, a trader's initial position must be small. It is impossible to go full size and average down; a trader cannot have it both ways.

If one averages down, one is guaranteed less exposure for situations 1 and 2, and more exposure for situations 4 and 5, EVEN IF ONE USES STOPS.

If anything, outstanding traders should do the opposite of averaging down and average UP (scale up).
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I really have nothing against the original posters' stratetgy of averaging down, however he wants to do it, it's his money, I don't care.

But you have posted nothing short of an excellent analysis on the art and science of Position Sizing - The Advanced Course. This type of modelling is required to scale (pun intended) the higher levels of trading, and is the key to making outsize gains with minimal risk. If there is a Holy Grail in trading, it resides in this direction, not that of order entry.

Good trading,

JJ
 
Quote from JimmyJam:

I really have nothing against the original posters' stratetgy of averaging down, however he wants to do it, it's his money, I don't care.

But you have posted nothing short of an excellent analysis on the art and science of Position Sizing - The Advanced Course. This type of modelling is required to scale (pun intended) the higher levels of trading, and is the key to making outsize gains with minimal risk. If there is a Holy Grail in trading, it resides in this direction, not that of order entry.

Good trading,

JJ
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Hi, JJ

You're right.

Traders are told the key to successful trading is (1) to cut losses short, and (2) to let profits run. The first is easier than the second, for most; and averaging up is the ultimate way to doing the first. Gotta go.
 
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