Quote from NoDoji:
That's my top goal this year, adding to winners in a trend. Just as a bank only lends to those who prove they're financially sound, adding to winners uses your existing success to finance future success. If you're in a winning trade, you have unrealized gains to "re-invest" in something you're obviously doing right.
Since a trend is defined by HL/HH's or LH/LL's, you put on the initial position on a pullback that demonstrates support/resistance and renewed buying/selling at the TL or 20-bar EMA, then add to the winner at the breakout level, expecting the breakout to hit a new high or low if the trend is still intact.
Quote from NoDoji:
I'd only be adding in a clearly defined trend, not a narrow stair-stepping channel, or in a range. You want strength or weakness to be exuberant so the breakouts are powerful. To be safe, I'd only add to a winning position at the breakout level (1 tick above/below the previous high/low), not before, to avoid the risk of a failure reducing your existing profits. Sometimes the move is so exuberant, though, that adding just before the breakout makes sense to avoid slippage. You can tell by the price action on a DOM when it's like that.
Quote from Nexen:
Yep same goal here.
I have mastered not adding to losers and respecting my stops.
This is new territory for me, and I plan to exploit on this new year with my new size.
Nice discussion. I really like this. I'd say my top 3 goals this year are (not necessarily in order):
1. Improving entry points to be able to get into trends earlier even if this includes a number of false starts.
2. Once in the trend to stay in it and ride it longer and not jump in and out so much.
3. Once in the trend and in a winning trade, to add to it and find the best entry points and best size. And also to have a good, well defined exit strategy or strategies if the trade begins to break down.
Along with everyone else, I've learned the hard way along the way that adding to a losing position, averaging into it, is almost always a mistake. Period. Your mind says something like, "Oh, this is going against me. But if I buy some more (or sell some more), my break even point will be better and then when it comes back here in a minute I'll make some good money." And that is a possibility. But what seems to happen more often is that the trade continues to go against you and now you're losing even more than you would have if you had maintained only your original position. Then maybe you say, "Shoot! I'll buy (or sell) a few more and average down a little more." But when it goes against you even more you're basically really screwed. And also maybe then the loss is so big you're unwilling to exit
hoping it will somehow come back. This is called "Denial". And as they say, "Denial" isn't a river in Egypt.
Thus adding to a losing position rarely is a good thing to do. It's better to cut your losses short quickly, and then reassess the market and take it from there. Also if you're quick enough, and tuned in enough, you can just flip the trade, as NoDoji has pointed out a number of times, and a lot of times you'll quickly recover your small loss and move on to a nice profit.
