Can scaling/averaging down be a viable trading system?

kubilai---- yes somewhat, i stopped the short covers more so to see if my short side could freefall a bit more if events had degraded. that day i was able to cover many shorts at more then 1 point of profit, and i was able to start accumulating the longs at a lower price---------that day my short side made some extra profits in the selloff and then the long side was benefited by a better cost basis for the longs accumulated that day.

yes i do evaluate the range on a daily/weekly basis but that day did not have me change anything. with the very strong buying after this day I did make an adjustment to the upper range. i moved it up 10 es points using the extra profits from the london day as a way to "pay" for the range adjustment and the re-centering of my 50 to 50 point.
 
Quote from MacroEvent:

kubilai---- yes somewhat, i stopped the short covers more so to see if my short side could freefall a bit more if events had degraded. that day i was able to cover many shorts at more then 1 point of profit, and i was able to start accumulating the longs at a lower price---------that day my short side made some extra profits in the selloff and then the long side was benefited by a better cost basis for the longs accumulated that day.

yes i do evaluate the range on a daily/weekly basis but that day did not have me change anything. with the very strong buying after this day I did make an adjustment to the upper range. i moved it up 10 es points using the extra profits from the london day as a way to "pay" for the range adjustment and the re-centering of my 50 to 50 point.
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Hi MacroEvent,

How many % of your method is actually discretionary versus mechanical? If too much discretion is needed, like adjusting your range upwards, long short ratio, when to get "extra" points, then your success is very much due to your market reading ability rather than merits of your system. Would you agree?
 
to a point I agree-----in my situation for the ratio trade i would say 5% is discretionary on a quarterly basis------it is not very often that I do this trade manually. believe me the profit power is in the repetition of buy/sells and covers.

an intraday only system similar to this on the russell is insane--------excellent gyrations for very rapid buy/sells and covers on a per minute basis when trading for .30 to .40 per trade.
 
Before I learned my lesson (or paying my dues :), I average down on the old "big" S&P during one of the major selloffs in early 90s. I virtually killed my account over a week's time.

Then I learned a lot about systematic trading, and that in turn improved my discretionary skills.

2 things are very important in averaging down.

1. do you know your ABSOLUTE limit in # of contracts to hold?

2. is averaging down part of your PLAN?

If it is planned and your odds is calculated, averaging up or averaging down is perfectly fine.
 
In system trading, scaling in and out are the same as trading multiple systems and combine their equity curves (diversification?).

In discretionary trading, as TRENT suggested, I know for facts that a few highly profitable traders do scaling in (averaging losers) trading ES (S&P emini - a mean reverting market) and consider it an important part of their strategy (Yes, including Marty Schwartz). But you still have to have stop. The real system is more of emotional management.

As FuturesTrader71 mentioned, personally I found it to be problematic and complicate things for me, I prefer all-in and sometimes scaling out... different from how I was taught...

Agree with Kiwi, good thread.
 
wouldn't the eventual inevitable stop out be really painful if u average down? tharp said (not saying tharp is any good in the first place lol) if u average down u'll be at your biggest position size on your biggest lost while u'll be at ur smallest size on ur biggest winner.
 
yes this is exactly correct if you have a very static cost basis adjustment with the new positions added in relation to the current traded price level.

what i should add, is that the position must generate revenue at a greater pace then the negatives of the price movement against the positions average cost basis---------------this would be a dynamic affect on the positions cost basis with a revenue generator dimension.
 
Quote from Remiraz:

wouldn't the eventual inevitable stop out be really painful if u average down? tharp said (not saying tharp is any good in the first place lol) if u average down u'll be at your biggest position size on your biggest lost while u'll be at ur smallest size on ur biggest winner.
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I was taught a way to fix this problem and that is to wait for a pullback to exit... But it can get you killed big time when you are not focused. Like I said, too many decisions for my taste.
 
Okay here is what I think. Averaging down is a good thing to do in congested markets(I think the ET word is "chop"). For example if you want to scale in to ES positions between about 11am and 1:30pm (GMT -5) you will be fine most days and take alot of half ticks. However if you were to use the same strategy between 9:30am and 10:00 am you would likely be in a lot of trouble.

It is also my belief that you should not average down with of the use of protective options. Using stops for this style of trading is just asking for trouble. How do you predict where congestion ends and a run begins? With a stop you only get one chance, if it gets away from you you lose. With an option you get the chance for things to move in your favour until expiration.
 
Quote from martys:

I was taught a way to fix this problem and that is to wait for a pullback to exit... But it can get you killed big time when you are not focused. Like I said, too many decisions for my taste.
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how do u know if a pullback is coming? what if that pullback never comes?
 
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