I agree with you in principle but you are discounting one paramount factor: the learning curve. To be able to trade the market the right way, takes a lot of learning and it may be years before one gets comfortable enough and good enough to make consistent profits. Averaging down is very simple and almost anybody can figure it out in a relatively short time. The same cannot be accomplished when learning to do it the "right" way. So your point #1 and #2 would not be valid since those who average down would not know how to trade any other way and would let those opportunities pass by, sine they were not trained to catch them in the first place.
Averaging Down the real Holy Grail
- Thread starter Avgdownking
- Start date
I agree with you in principle but you are discounting one paramount factor: the learning curve. To be able to trade the market the right way, takes a lot of learning and it may be years before one gets comfortable enough and good enough to make consistent profits. Averaging down is very simple and almost anybody can figure it out in a relatively short time. The same cannot be accomplished when learning to do it the "right" way. So your point #1 and #2 would not be valid since those who average down would not know how to trade any other way and would let those opportunities pass by, sine they were not trained to catch them in the first place.
Once again I see traders assuming that when I have a loss is 20 times the size of a winner or one whole months or profits or God forbid, that it happens on a monthly basis. Come on guys, I'm not stupid, preservation of capital right?
ADK
ADK
Many people can read.
But very few people can read carefully.
Of these, a small number will attempt to understand the intention of what you wrote and note well the conditions and caveats you introduced.
Of these, an even smaller number will be able to leave aside their personal biases, strongly held views, taboos and mental filters to form a considered view as to whether what you wrote has merit.
The one response to my previous post on this thread is a classic example. It is tiring and time consuming to caveat everything so it is flame proof, but on the other hand you do not expect to have your entire intended meaning turned upside down by selective quoting, out of context.
ET is an education, but not for the intended reasons, and I for once am very grateful that human nature is this way.
I'd agree somewhat. It depends on the time horizon. Over many years--at least ten, more like twenty--it has been difficult to lose. I would go no fewer than a ten years.
When it comes to daytrading the ES, averaging down with no stop loss would work most of the time, but the one loss would wipe out many days, if not weeks, if not months, of gains.
The big money in daytrading comes from averaging UP.
If you do it right, it will be rare that your losing day loss will exceed your average daily win. At worst, I lose 2x my avg winning days, and these happen very rarely.
As others have mentioned:
- it helps to have an edge eg. the typical patterns, trend, etc..
- screetime as Anek would say!! you need to learn the stocks/markets you play, how they move, react to other market moves, news, etc...
- be sufficiently funded to play the strategy
- You NEED to be sufficiently mature to admit your loss!
All that said, even when a day goes completely against you (fringe probability events happen!), you will still make money with this strategy! Ask MBAGH - though in his case i would guess - if you ask him - that he made mistake after mistake that day.
Il2t
Not the best example.
He's constantly retooling.
And his losses, if they are to be believed (and for the sake of this discussion, I will present them as being fact) are astronomical by my measurements:
Big Loss #1
and even when he re-tolled, he still crapped-out:
Big Loss #2
... and there have been other huge losses along the way.
Considering the fact that thoses losses were accumulated on strong one-way trend days, yes I do believe he employs some type of averaging down philosophy in his trading.
If anything these results support my previous statement(s) and shows why I would not recommend such a philosophy to anyone ... except the trader who is working with OPM.
Good trading, (sincerely),
J Jam
Again JJ. Not to rain on your parade, but, assuming MBG... is being honest with the rest of us he is still up more than 100% for this year. Not a bad number considering he is employing averiging down in his approach.
I can assure you, there is money in this sysytem (and I am speaking from personal real live trading experience). This sytem with some odifications and sound discipline will make $$$$$. However, it will also put you in situations where your position will make you smoke, cry, and rise the stress indicator to highest levels imaginable.
I can assure you, there is money in this sysytem (and I am speaking from personal real live trading experience). This sytem with some odifications and sound discipline will make $$$$$. However, it will also put you in situations where your position will make you smoke, cry, and rise the stress indicator to highest levels imaginable.
Just to let you know I'm not trying to be a total jerk about it, Iluv2trade, yes, averaging down can work extremely well ...
... for a master level trader working with an extremely large amount of capital (at least $250k, preferably a cool million).
Point-in-fact, they are the ones who would, of necessity, have to employ such a tactic, as you can't chase the market with that amount of capital.
***
Here's how they might do it:
1) The would need to determine the amount of capital they wanted to put at risk (let's say that is equal to 3-5% of total funds).
2) They would need to separate their funds into 2 to 4 pools of capital (think of it as extra rounds of ammo).
3) They would need to enter their position with the first 1 or 2 pools of capital and then:
a) if the position moves in their favor, great, take the profit when it is offered; or
b) if the position moves against them, be ready to add to it, being careful to never violate their stoploss rule of 3-5% of their total capital base; and
c) they would have to be willing to cut the entire position if the conditions (trend, price action, whatever) turns against them
***
But for anyone else (ie, probably 95-99% of the Elite Trader readership), WARNING, DANGER!
JJ
... for a master level trader working with an extremely large amount of capital (at least $250k, preferably a cool million).
Point-in-fact, they are the ones who would, of necessity, have to employ such a tactic, as you can't chase the market with that amount of capital.
***
Here's how they might do it:
1) The would need to determine the amount of capital they wanted to put at risk (let's say that is equal to 3-5% of total funds).
2) They would need to separate their funds into 2 to 4 pools of capital (think of it as extra rounds of ammo).
3) They would need to enter their position with the first 1 or 2 pools of capital and then:
a) if the position moves in their favor, great, take the profit when it is offered; or
b) if the position moves against them, be ready to add to it, being careful to never violate their stoploss rule of 3-5% of their total capital base; and
c) they would have to be willing to cut the entire position if the conditions (trend, price action, whatever) turns against them
***
But for anyone else (ie, probably 95-99% of the Elite Trader readership), WARNING, DANGER!
JJ
