The math will not lie. Averaging in and out will net smaller profits. Averaging is done by folks who are looking to overextend themselves and are scared to do so at the beginning. As they begin to profit, this fear causes them to being exiting early. ---The best way to trade successfully is to calculate your max risk at the start of a trade and then just get in. Also, when it then makes sense to take some of a trade off, it makes sense to remove the whole trade.
Averaging IN (not Averaging Down)
- Thread starter Newc2
- Start date
It does work for me. So, if the first trade has my maximum capital risk, 2%, I add a second with the same risk when the first has added 2% in unrealised gains, and keep adding new trades every time unrealised gains add another 2%.
I always go fully out in 1 go.
I'm an average downer, but if i see a strong trade going my way, i aim to start averaging in.
In the mean time i like to have upto 4 positions going reduces my risk and keeps my interest better.
Each one of those trades adds another 2 percent capital risk to the picture and makes you wildly over-extended. This is the main reason that folks fail. In addition, when you are right on a trade, you will never reap the full benefit.
You're just leaving out what we've already talked about previously, but its simple for me to re-capitulate
When my Trade 1, with a -2% capital risk, makes +2% of my account, I move the SL to its entry price (so its risk is now 0%), and I open Trade 2 with a -2% risk.
When Trade 2 makes another +2% of my account value, I move SL's of both Trades 1 and 2 to the entry price of Trade 2, and open Trade 3, with its SL also at the entry price for Trade 2, i.e. a -2% risk. Risk at this point is now 0% of account capital.
From this point onwards, no matter how many subsequent trades are added, whether its 2 more or 20 more, as long as I put all the SL's at the entry of the previous trade, no risk to account capital accrues.
This is not correct as you have opened positions that have larger risk than your max capital risk. This is wildly over-extended greed and runs the risk of ruin when you can't get out. In addition, you are missing the profits that you would have made by putting your full position on outset.
Not too many of us have Soros' and CIS's capabilities. For a small mom and pop retail, how can I determine if I should trade like Soros or B1S2? And how do I test/backtest the two hypotheses?
Not trying to argue but trying to understand.
My max capital risk is not 2%: 2% is the max capital risk per trade. But when a trade goes 2% into profit and the SL is pushed up to entry price, the risk on that one is 0. All subsequent trades on this chart have a 2% capital risk, and all have a stop that is 2% capital risk behind the latest entry price. So if I have 20 trades open, all stops are at the entry price of the 19th trade. So, if that stop is hit, the 20th trade loses 2% of capital, the 19th breaks even and all the others make a profit.
There are two areas in which I take a greater risk - one is if there is a massive black swan event that gaps below most or all of the open trades - but if its that bad, then everybody on this market is wiped out.
Two, is that I am deferring getting profits in the bank and some trades which might have netted me a helpful 2 or 3 or 4 or 5% will never generate 20 or 10 or even 5 pyramids - but by the same mechanics few will be outright net losers and those that are will never cost me more than my 2%.
Anyway, we've been over this before.
Actually anyone could put on trades like those traders if they put in the work to learn. Smarter traders use only a very small portion of their capital, leveraging with their profits, not their principal. The answers are found in getting a black belt in risk/trade mgmt.
Most traders are upside down, leveraged to the teeth with their principal going in, taking small profits and large loses. This crowd is knee deep in fear, greed, hope, & instant gratification. They obsess on entry signals and typically are clueless on trade/risk mgmt.
It's your choice on how you trade, which type of traders you want to emulate.
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So your Nostradamus trade works for you and you see it cranking seriously in your direction with no pullbacks. Do you just sit there and *not add* to the position that's clearly going your way? If you say "yes I don't add" then you don't actually have real conviction in that trade. If you say "yes I add because the trade has proven itself strongly" then you also average in.