Averaging Down the real Holy Grail

Quote from Cesko:

5) When the trend changes, read when a massive support level is broken and held, take a loss and trade with the new trend.

........TRADE WITH THE NEW TREND!!!!!!!!

P.S. From original post
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... and just because that's the way the OP defines trend, it doesn't mean it's the way everyone does (although I think that is not dissimilar to B1S2's definition ...).

These discussions exist so that each and every trader reading them can take the ideas and concepts expressed, mull them over, and see how they do (or don't) fit into their reality tunnel of trading.

Just remember, for everyone, their situation is unique and pertains only to themself. You can't be totally dogmatic in how you see things (something I'm learning for myself), regardless of the fact that you would never do something.

Good trading,

JJ
 
<i>"The big money in daytrading comes from averaging UP."</i>

The OP stated averaging down specifically for indexes... did not include stocks, did not include long-term investments, etc. Strictly indexes is the topic OP chose.

Someone else mentioned the challenges of averaging in as a primary tool. What happens when a partial position is entered at the first determined spot, and price action turns on a dime from there?

Now you have price action surging in your favor... with a fractional position of exposure. What next? Average up? Exit the partial-size winner against full-size losers? You will never have trouble filling full size (or more) on the bad trades. You will have challenges filling full size on many immediate winners.

Also, what about sideways rolling markets? Enter at the first layer, price action goes in favor. Enter at a higher(lower) point to fill complete order, price action immediately stalls and comes right back in your face.

Start to build a scale going the opposite way, same result. Price action rolling in tight sideways fashion may not let you scale in as expected, but will not move far enough to allow averaging up.

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This premise assumes one helluva lot. Markets seldom let you enter on a scale against, get all filled and then turns in favor from there. How about the many, myriad times where price action either blows out your scale OR reverses shallower than selected scale of entry and runs in favor from there?

OP made it sound like averaging in is a piece of cake, aka holy grail. Does anyone here honestly think everyone with several year's experience hasn't already thought of = tried all that before?

It's a pretty safe be that many of us figured out all angles of this topic, superficial hype versus experience in the trenches (i.e. large losses) way before most ET readers ever thought about placing a trade.

More than a few veterans here understand completely how averaging down looks like the holy grail on its face. We thought the same exact thing, once upon a time. Is anyone here arrogant enough to think this topic is a new discovery by them alone? Hardly... every angle has been tried & tested thru decades past.

I also realize that a person convinced against their will is of the same opinion still. In other words, y'all will believe what you need to believe, until the market explains it in real-money results. Averaging in for long-term investments, stock trading, etc has some merit. Specific to the topic of this thread via indexes and relatively short-term trading, it is certain fiscal suicide.
 
Quote from TudorJones:

But you will find the right way faster :D
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:D


nice. like this guy

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surf
 
If you can master:



staying out of the market until you're absolutely confident in the trend

cutting losses

trading the trend

holding so long as trend is intact (riding winners)

and averaging up on super strong trends







then you have absolutely no need to consider averaging down since your already so in the money and your gains are monsters compared to your puny losses.
 
Quote from Cesko:

What he is describing is buying retracements in uptrend.
To me, averaging down is lowering your cost of entry regardless of trend.
Read first post.
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Yes, I understood that from his first post, and discussed how it could be done with a large pool of capital.

But believe it or not, you can lower your cost of entry while the primary trend remains intact.

Here's an example:

Chart 1 shows the Primary Trend (in this case, I'm using the S&P500 Weekly, but many position traders will refer to the monthlies when doing their analysis).

As you can see, using the classical 200 SMA/50 SMA combination, we are in an uptrend according to the weekly.

JJ
 

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Please, don't interrupt, I'm not finished.
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Now, going to the 60 minute chart, we have a beautiful Gap Up after a classical Ascending Triangle, for a position player, this would have been a nice time to enter a trade (Trade #1).

The market trades back down, but finds rather obvious support, so we add to our position two days after the initial trade (Trade #2).

... and then, whammy, the market drops like a rock (BELOW OUR INITIAL ENTRY POINT).

However, it doesn't make a blip on our Weekly chart, and the previous day closed in the green on our Daily chart, so we add to the position when it drops below our initial entry point (Trade #3).

I would be looking for a restest of the highs on this one, with the Primary, Secondary and Tertiary trend still pointing upwards.

But even if it doesn't, and I decided to bail, (which I wouldn't, I think this particular trade has more upside, but who knows, really) I'm very very nicely in-the-money and I've only used 3 of my bullets (with one remaining in the wings). Bottom-line, I averaged-down and bought the tertiary level trend while the primary and secondary were still intact.

Always fun talking with you guys. :)

Good trading,

JJ
 

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OK - here's a reality check for ya'll. Yes, as some of you have guessed correctly, I have used avg. down (or scaling in or whatever you want to call it) as part of my trading over the past 4 months. It's not all I do but is a very powerful tool. I have not commented much on my trading on ET because there are so many flamers and haters out there and this topic is so taboo it is just not worth the time/effort. But in the spirit of saving someone lots of money, don't avg. down! Unless of course you have lots of experience, a big account and bigger discipline. My 3 big losses were all within my parameters (although I did violate my rules on the last one). Markets change constantly and my only mistake was thinking that I would not lose more than a few times a year. When it just recently happened a few times in a month, I stopped and am now trading differently and tweaking things. You have to constantly adapt. But overall I am VERY pleased with my results. Attached you can see my equity curve, intraday, with every fill. There are an infinite number of ways to trade and keeping an open mind and doing the required homework for yourself without blindly following someone else's "system" are keys to success, imo.
 

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JJ - you over analyze things, give it a rest. Trading is simple.

MBAGH - that took guts to post the equity curve. Hopefully, it will save some guys money.



Its weird just how much losses can eat away at your year end result. I'm sure most guys thought MBAGH was well on his way to a 7 figure year but just two huge down days put him nowhere close to that level. Same thing with RM, probably 3 winning days made his entire year - and he's break even for the rest of the 200 days.
Which reminds me of something that LBR said.....something like the goal in trading ought to be to break even for most of the month and make a killing in the 2-3 days a month that are super strong trend days (or something like that). You do that by averaging up not down.
 
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