Never ever add to a losing position.Learn to lose.
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Conviction and averaging down
- Thread starter DayTraderNYC
- Start date
I swear that every two or three months we have the exact same debates on this forum...THis is probably the third or fourth time that the scaling versus averaging down debate has been argued...
Each time I read this stuff, I am reminded more and more how each and every trader believes in their own trading "religion" and will defend it at all costs...Nevermind that many traders scale, average in, scale out, do whatever, whenever, wherever...There is still this fanaticism imparted by many traders which goes something like "what? Are you insane? NEVER, EVER add to a loser...You are going to go broke, going to live in a cardboard box, man...that is nuts"...
Everyone has to put this stuff into some perspective...As small traders, fine, there is no need to add to a loser, there is plenty of liquidity(in most markets) to just exit and re-enter later...What about those funds or larger traders who cant just get in and out like that...They have to scale...So they are adding to a loser...
Each time I read this stuff, I am reminded more and more how each and every trader believes in their own trading "religion" and will defend it at all costs...Nevermind that many traders scale, average in, scale out, do whatever, whenever, wherever...There is still this fanaticism imparted by many traders which goes something like "what? Are you insane? NEVER, EVER add to a loser...You are going to go broke, going to live in a cardboard box, man...that is nuts"...
Everyone has to put this stuff into some perspective...As small traders, fine, there is no need to add to a loser, there is plenty of liquidity(in most markets) to just exit and re-enter later...What about those funds or larger traders who cant just get in and out like that...They have to scale...So they are adding to a loser...
Originally posted by vulture
What about those funds or larger traders who cant just get in and out like that...They have to scale...So they are adding to a loser...
Good trading principles are the same whether you're trading in 100 share lots or 100,000 share blocks. The execution methods will differ a little. I've seen traders bang in and out of 100K share blocks just as easily as smaller traders with 100 shares. Just because you have a large share position doesn't mean you can't cut your losses and trade smart.
i think this argument is more semantics than substance.
ed seykota once noted that, for him, to be bullish and to be long are essentially the same thing.
in this same sense, to define a trade as a "loser" is to exit the trade immediately on point of recognition (or should be the case anyway). but a trade is not necessarily a "loser" just because it is going against you a little- the definition is dependent on your plan. if you are a swing trader you don't sweat thirty cents, if you are a position trader you might not sweat three points.
if a guy scales in regularly, then a trade that is going against him in a manner expected and planned for would not yet be deemed a "loser" until or unless it triggers some pre-set criteria that changes the designation of the trade from "jury still out" to "time to get out."
p.s. i love the way every tom dick and harry is willing to throw down the gauntlet. ET reminds me of the monday night quarterback league at Caesar's sportsbook.
ed seykota once noted that, for him, to be bullish and to be long are essentially the same thing.
in this same sense, to define a trade as a "loser" is to exit the trade immediately on point of recognition (or should be the case anyway). but a trade is not necessarily a "loser" just because it is going against you a little- the definition is dependent on your plan. if you are a swing trader you don't sweat thirty cents, if you are a position trader you might not sweat three points.
if a guy scales in regularly, then a trade that is going against him in a manner expected and planned for would not yet be deemed a "loser" until or unless it triggers some pre-set criteria that changes the designation of the trade from "jury still out" to "time to get out."
p.s. i love the way every tom dick and harry is willing to throw down the gauntlet. ET reminds me of the monday night quarterback league at Caesar's sportsbook.
Originally posted by darkhorse
if a guy scales in regularly, then a trade that is going against him in a manner expected and planned for would not yet be deemed a "loser" until or unless it triggers some pre-set criteria that changes the designation of the trade from "jury still out" to "time to get out."
I agree. Different traders have varying risk profiles depending on the time frame and expectation of the trade. But adding on to a loser when the stock is going against you (and not reversing in your favor) is bad trading, whether you call it "scaling in" or "averaging down."