Averaging Down the real Holy Grail
- Thread starter Avgdownking
- Start date
Success can be any things to many people. Some want to get as much as possible from the market, others who are not capable of trading all set ups all day long, go for minimum and that is all they get. If I can get 1 point a day with 10 contracts, it is more than enough for me. For example, I have decided to only place 1 trade per day. Usually, it is in the first 30 to 60 minutes of the market. Once I get filled and it goes my way I ride it with a tight stop of minimum 1 point. If I get more I am happy if not 1 point is still $50 per contract. So far so good.
Depends where you started averaging down, when you added, and when you sold.
Profit--i.e. the "reward"-- is only one side of the equation. What counts in the long run is how much profit based on how much risk.
Put it this way (and I don't the time this moment for more):
Two traders complete the day with 5 ES points of profit.
One had a max risk of 25, since he averaged down.
But the other had a max risk of only 10, since she did not. She might have averaged up, or not.
Which of the two was the BETTER TRADER that day?
Which one was the better steward of the leverage that futures offer?
And which trader probably spent more time getting those 5 points?
Time = exposure =risk
OT:
Anek,
I sent you a PM 5 days ago about averaging up ; did you receive it?
Bernard
What is missing from your equation is that averaging down is super easy and requires very little trading. Example: start at opening and once the price move ____ points (anywhere from 5 for conservative to 2 for aggressive style), continue adding ____ contracts (anywhere from 1 to 5 depending how fat your account is) until you turn a profit of 1 pt. per contract. Once that happens, start scaling out. Most days you will make $$$$. Now, can you teach me how to make $$$$ your way in one paragraph????? If it was so easy your way we would not have 95% of people failing at this. Is your system superior? YOU BET! Is it the right way t trade? YOU BET? The problem is your way is available to 5% of those who try, averaging down could successfully be done bu 50%. So for the masses, I would venture to say that averaging down is a better solution.
Saxon,
Just Friday ?
The key is to knowing when enough is enough in order to keep the system profitable.
ADK
Averaging down, like averaging up, is simple position sizing. It is the easiest part of trading to learn, arguably.
The difficulty is in the entry and exit.
If a trader has a market-losing system, NO position sizing technique will be enough to save it. With some techniques, the end will be here before you know it.
For instance, martingale, anti-martingale, or some other position sizing strategy cannot save a roulette player from definite ruin. Unless she has found a biased wheel and is aware of how to use it to her advantage, the law of large numbers dictates eventual ruin.
If a trader has a market-beating system of daytrading the e-minis, I GUARANTEE you that he will make more money with less risk if he does NOT average down.
I can also guarantee that a trader can take a market-beating system and lose the whole wad simply because of poor position sizing (see threads regarding Victor Niederhoffer for illustration, since being short gamma naked is a form of averaging down).
"Losers average losers," it has been said. Perhaps "loser" is too strong a word, for a trader can average down and still avoid eventual ruin. But averaging down will definitely lead to underperformance, as I have demonstrated in my prior posts. And in my book, if you underperform, you surely cannot end up a winner.