Can scaling/averaging down be a viable trading system?

MacroEvent,

Yes, I understand that your system can profit from 1 point oscillations, and that's the beauty of the system. That explains the capital requirements because you have to be able to carry 1 contract for each point in your projected range. 80 contracts for your range, that's a lot of margin! :)

I also understand why the starting point is critical. You want to start where price has the least chance of moving out of your projected range. As long as it oscillates within your range you make money, the moment it leaves the range and you cannot afford to add positions you lose money.

As far as mechanical benefits, have you tried the IB interface? It lets you setup multiple orders and fire them off selectively with one click. Perhaps you're just hampered by a single-order entry interface that made you use multiple accounts?

It's true that every position covered is at a profit, and that can be very pleasing. However, all positions held are accumulating paper losses. What exactly will you do when an "uncle" trend develops and your position just grows and grows in one direction? What will be the losses and what's the chance you won't be able to act promptly? The survival of your system depends on that question...
 
In my experience, I have come across 4 people who have defended this approach aggressively. Only 1 is still trading and he is now doing spreads and doesn't do this any more.

As long as the zone is defined and a stop is present outside this zone when you know you are wrong, then this might work. However, for almost all traders, this approach is the absolute fastest way to margin calls and possibly bankruptcy.

One of the most important lessons in trading is learning to be wrong. Most of us are raised to have beliefs and to defend them. You can say that we are raised to have a bias and be loyal to it. The market will quickly show that if one is not open to all possibilities, then you will either run out of money or change. This approach of averaging down is the fastest way to achieve one of those goals.

For most guys reading this, it is best to manage a position one trade at a time. I scale in and out actively. This is how I have always traded. However, I average my trades up in the direction of the market. I get in and I press when I'm right and treat the last entry price as if it is my initial trade. This is how I know most people can make money with lower emotion and risk involved. This is what I teach and it works.

Best regards.
 
Thank God that there are people trading this kind of suicidal, goofy system to take the other side of my trades when I am scalping with the trend..

Thanks for the liquidity! :p

And for the money!
 
First you need an actual stop out point. If you don't have an actual stop point then you can avgerage in until the acct blows up. In a choppy market you might make money doing what you are doing but the first trend day you will blow out. Maybe go back and look to see if you can improve your intial entries or maybe look at setting a realistic stop point to begin with if you were getting stopped out all the time on your first entry. It sounds like your first entry trade signal is not very accurate so you might want to focus on that area first to get better entry prices.
 
this all depends on situation. there is no rule whether or not you should average down except that losses in general are for losers. i tend to cut my losses at a certain point 90% of the time. on occasion i will hold one. but that is because i have observed something that tells me i should. 90% of the time i cut losses, but not always.
 
what's more important is finding trades that tend not to be losers. that way, you don't need to average down.

Quote from Lights:

this all depends on situation. there is no rule whether or not you should average down except that losses in general are for losers. i tend to cut my losses at a certain point 90% of the time. on occasion i will hold one. but that is because i have observed something that tells me i should. 90% of the time i cut losses, but not always.
More...
 
but some of my biggest winners were capturing fear. and buying more.

Quote from Lights:

what's more important is finding trades that tend not to be losers. that way, you don't need to average down.
More...
 
You must log in or register to reply here.
Back
Top