Averaging IN (not Averaging Down)

mbondy said:
That's poppycock.

One should be at their smallest when entering into a position to mitigate initial risk, and build the position as it either:
1) goes their way
2) goes 'against' them to a predefined limit

Only someone who presumes to know with certainty what is going to happen next would put on an entire position at once.

Scale in, scale out, no regrets.
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FALSE
 
ironchef said:
Any studies that support that?
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Common sense would tell you that averaging up into a trade that is a winner means that you will necessarily not make as much money on a trade because the full position was not on at the beginning. As for averaging down? Common sense dictates that this is not a good idea over the long haul. It's similar to just calling in poker and throwing good money after bad. In addition, if you average in, you'll likely average out which means that you"ll choke off profits.
 
Buy1Sell2 said:
No. Prudent Risk Management includes putting your full position on at the start and using a stop. It also included letting your position run to maturity. Averaging is employed but those who are wildly over-extended.
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When you average in, you create more decisions to make. This means there are more opportunities to be wrong. You don't want that.
 
Buy1Sell2 said:
That's scaling in.
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I mean, the initial position is to my maximum acceptable capital risk. The second and subsequent trades are of the same size. Scaling in to most people means opening a small trade and then adding to it progressively until it reaches full size.
 
tomorton said:
I mean, the initial position is to my maximum acceptable capital risk. The second and subsequent trades are of the same size. Scaling in to most people means opening a small trade and then adding to it progressively until it reaches full size.
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Sounds exactly the same.
 
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