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Averaging Down the real Holy Grail
- Thread starter Avgdownking
- Start date
Since we are in the topic of grails in the indexes, I will share my holy grail swing compendium for the e-minis.
- Examine market surroundings and be on the lookout for the birth of a new trend. A massive trendline break, a major reversal signal at the top or bottom, you know the types.
- Enter a very small position and stay put until the next confirmation.
- Add another unit when a subsequent confirmation is obtained. ie Price action moving in your favor
- Add another unit when price retraces to support or resistant levels as the trend remains intact
- Use dynamic stops on all positions to preserve capital and secure profits
- As long as the trend is still running strong and at least 2/3rd of the profits are secured by protective stops feel free to use as much leverage as needed. The sky is the limit in averaging up.
- When you get a new signal, a new birth of a trend, sell/cover it all, take your profits and start all over again with a small unit.
Anek
- Examine market surroundings and be on the lookout for the birth of a new trend. A massive trendline break, a major reversal signal at the top or bottom, you know the types.
- Enter a very small position and stay put until the next confirmation.
- Add another unit when a subsequent confirmation is obtained. ie Price action moving in your favor
- Add another unit when price retraces to support or resistant levels as the trend remains intact
- Use dynamic stops on all positions to preserve capital and secure profits
- As long as the trend is still running strong and at least 2/3rd of the profits are secured by protective stops feel free to use as much leverage as needed. The sky is the limit in averaging up.
- When you get a new signal, a new birth of a trend, sell/cover it all, take your profits and start all over again with a small unit.
Anek
Ok I will bite on this to,
I have been trading for a long time and done all the bad things.
But I do see what the original poster was saying about multiple contracts or averaging down, if that was your intention in the first place, let's say you like to trade 4 contracts on the e-mini-
any index and you see a potential trade setting up you can get in one contract with the intention of 4 total for the trade, rather than all at once,, let's say it is the russell, my index of choice and it is trading at 847.70 will hit it with one long then it goes to 847.20 and the trade still looks good add there again then it trades at 847.40 looking better as time increases with the trade
you now have 4 contracts if it goes to 848.70 I will take one off
then at 849.50 take one more off then hold till trade starts to loose momentum, that way I am booking a profit, hard to loose after you book 200-300 and you still in trade you can put stop at
break even on last 2 contracts.
Now if you are in trade and you get in with 4 at once and trade goes against you and you panic and just add to your loss that is
a fast way to the poor house but if it is part of your trading plan
it will work out.
Also, If took a trade and it went against you and you only had 1 contract you will be thankful that you did not go all in at once
you may cut losses and look for another setup.
Just a thought.
Take care,
Joe Baker
http://www.youtube.com/user/TradePilotPro
I have been trading for a long time and done all the bad things.
But I do see what the original poster was saying about multiple contracts or averaging down, if that was your intention in the first place, let's say you like to trade 4 contracts on the e-mini-
any index and you see a potential trade setting up you can get in one contract with the intention of 4 total for the trade, rather than all at once,, let's say it is the russell, my index of choice and it is trading at 847.70 will hit it with one long then it goes to 847.20 and the trade still looks good add there again then it trades at 847.40 looking better as time increases with the trade
you now have 4 contracts if it goes to 848.70 I will take one off
then at 849.50 take one more off then hold till trade starts to loose momentum, that way I am booking a profit, hard to loose after you book 200-300 and you still in trade you can put stop at
break even on last 2 contracts.
Now if you are in trade and you get in with 4 at once and trade goes against you and you panic and just add to your loss that is
a fast way to the poor house but if it is part of your trading plan
it will work out.
Also, If took a trade and it went against you and you only had 1 contract you will be thankful that you did not go all in at once
you may cut losses and look for another setup.
Just a thought.
Take care,
Joe Baker
http://www.youtube.com/user/TradePilotPro
<i>"hard to loose after you book 200-300 and you still in trade you can put stop at break even on last 2 contracts."</i>
What happens when your first target is hit, fills one contract and moves in favor by +3pts three times in a session? You never got leverage of four-contract size on those +3pt wins. You booked +9pts cumulative, but only on 1/4 of your trade size.
Fourth trade of the day lets you fill all four contracts, and keeps right on chugging thru -2pt stop on entire four-lot trade.
Now what have you accomplished for that day? +$100 before trade costs.
*
Instead of averaging down, what was the potential of entering two at first, two later when it goes +1pt in favor of initial entry or averaging up?
two contracts for +$300 at initial entry
two contracts for +$200 at +1pt above initial entry
Total $500 per trade <b>averaged up</b> three times
That's +$1,500 on your first three turns, same scenario as trying to average down.
Fourth trade is still -$800 max loss. Now what have you accomplished for that day? +$700 before trade costs.
See the difference in reality <b>thru all market conditions and possible scenarios?</b>
MBA was gracious enough to share reality with us all. He's not the only one to learn thru school of hard knocks on this topic. You can either choose to believe those with experience, or go out and experience it in your own account for yourself. Either way, the lesson will be learned.
What happens when your first target is hit, fills one contract and moves in favor by +3pts three times in a session? You never got leverage of four-contract size on those +3pt wins. You booked +9pts cumulative, but only on 1/4 of your trade size.
Fourth trade of the day lets you fill all four contracts, and keeps right on chugging thru -2pt stop on entire four-lot trade.
Now what have you accomplished for that day? +$100 before trade costs.
*
Instead of averaging down, what was the potential of entering two at first, two later when it goes +1pt in favor of initial entry or averaging up?
two contracts for +$300 at initial entry
two contracts for +$200 at +1pt above initial entry
Total $500 per trade <b>averaged up</b> three times
That's +$1,500 on your first three turns, same scenario as trying to average down.
Fourth trade is still -$800 max loss. Now what have you accomplished for that day? +$700 before trade costs.
See the difference in reality <b>thru all market conditions and possible scenarios?</b>
MBA was gracious enough to share reality with us all. He's not the only one to learn thru school of hard knocks on this topic. You can either choose to believe those with experience, or go out and experience it in your own account for yourself. Either way, the lesson will be learned.
Quote from JimmyJam:
LOL man, what are you talking about?
B1S2, one of the strongest and most knowledgeable traders on the board, will add to a position if the intermediate trend moves against his initial stake, but the primary trend holds.
... and while the scalpers (myself included) cavort in glee over our short-term gains, he will just sit back and watch prices rise another 50 pts (ES example) in his favor.
So in the final analysis users of averaging down philosophies B1S2 (among others) and averaging up methods (Anekedoten comes to mind on that one) both require extraordinary skills and knowledge if they are to be employed successfully (you know, pretty much like everything else in life).
Good trading,
JJ
What "skill" does it take to buy more if it goes against you? How many years of training does that necessitate. Please, elaborate, JJ. LOL.
Position sizing cannot save a poor system. But poor trade management can definitely increase the speed at which a poor system meets its inevitable demise.
As for B1S2, how do YOU know what his returns are, and what his maximum drawdowns are?
Maximum returns with minimum risk is a more precise and accurate way to determine success. And those who average down are going to suffer large drawdowns, even if they use stops.
we all trade in different ways, was just tossing out one way to do it, it depends on the trader that way is limiting losses
I am not saying all should trade that way If I am in a trade
I do my best to evaluate how I will handle my contracts
I have added to a winning position as well be we all trade with different amount of tolerance and capital just was giving 1 method of money mgmt.
There are many traders out there that dont have a ton of capital
and can not afford to risk holding all contracts without booking some profit, again that is why it is so hard to take a trade if you are following someone in a trading room or chat, traders all have different ways of trading and remember it is about making many
single hits and string together profits, not all about home runs
One old timer said to me ( watch your nickles and dimes and the dollars will take care of themselves ) if you continue to take profits your capital will grow and you will be able to increase your contract size thus tolerate more risk.
Please take one step at a time !
I am not saying all should trade that way If I am in a trade
I do my best to evaluate how I will handle my contracts
I have added to a winning position as well be we all trade with different amount of tolerance and capital just was giving 1 method of money mgmt.
There are many traders out there that dont have a ton of capital
and can not afford to risk holding all contracts without booking some profit, again that is why it is so hard to take a trade if you are following someone in a trading room or chat, traders all have different ways of trading and remember it is about making many
single hits and string together profits, not all about home runs
One old timer said to me ( watch your nickles and dimes and the dollars will take care of themselves ) if you continue to take profits your capital will grow and you will be able to increase your contract size thus tolerate more risk.
Please take one step at a time !
The skill is in being able to correctly identify the primary trend and to continue to trade with it even though price action may temporarily move against your initial entry.Quote from smilingsynic:
What "skill" does it take to buy more if it goes against you? How many years of training does that necessitate. Please, elaborate, JJ. LOL.
And believe it or not, as Anekedoten has described it here, averaging up requires even more skill. Because not only must you be able to identify the primary trend, but you must be able to consistently identify when the market conditions favor a strong move in its direction.
Good trading,
Jimmy Jam
Losers average losers. And what is sad, those who do it actually are acknowledging that fact while they are doing it.
If they TRULY had confidence in their approach to the markets, they would be eager to place their chips on the line with every trade.
Averaging down is a chicken shit approach. Have some balls already.
Confident traders know beforehand that they are sometimes, if not often, wrong. And they are OK with that. After all, that is what stop losses are for.
Those who are averaging down EXPECT that they will be wrong. If they expected to be right, they would not be saving up their chips for future purchases.
Averaging down ensures low exposure on the inevitable winners and high exposure on the inevitable losers. Win, win one; lose, lose more--how exactly is this a WINNING philosophy?
It is not. It is for losers.
If they TRULY had confidence in their approach to the markets, they would be eager to place their chips on the line with every trade.
Averaging down is a chicken shit approach. Have some balls already.
Confident traders know beforehand that they are sometimes, if not often, wrong. And they are OK with that. After all, that is what stop losses are for.
Those who are averaging down EXPECT that they will be wrong. If they expected to be right, they would not be saving up their chips for future purchases.
Averaging down ensures low exposure on the inevitable winners and high exposure on the inevitable losers. Win, win one; lose, lose more--how exactly is this a WINNING philosophy?
It is not. It is for losers.
Some of the apparently intraday swings in the equity curve also give me a bit of pause. Big ships/deep waters, I suppose.Quote from aeliodon:
...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...