ES Journal Archive (2011)
- Thread starter Buy1Sell2
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Quote from Laissez Faire:
Maybe I do, maybe I don`t. Regardless of that, what I do know for a fact is that from a money management perspective, it is a bad practice because your losers will be on maximum size and unless you have a plan for adding to your winners, those will be on your minimum size. One could probably get away with averaging down if it is within a tight pre-defined zone and the trader have the discipline to adhere to his original plan, but we all know how tempting it can be to change the plan when what was not supposed to happen, in fact, happened. I know very well myself, because I blew 70% of my swing trade account in stocks back in the day that I had built to a respectable size by not averaging down. Why? Because I averaged down on a leveraged trade that I simply had no intention of turning into a loss. I puked at the bottom of course and then bought the new top in anger. One of many painful lessons.
From the perspective of trading technique and not just money management, I also think averaging down is something any trader who is not facing liquidity issues should consider improving. Why? I assume that any trader who likes to scale in still believes that his first unit will show him a profit on the next tick. If not, it does not make any sense to enter at that price, no?
Now, I assume that the averager reasons that his first unit is at a potential turning point, but that there is a possibility that price will trade X points higher/lower before turning and thus justifies his actions of adding to his loss. What I have a little hard time understanding is why the trader is not willing to scratch his first unit for a small loss and then re-initiate his position at the next zone after price puts in a bottom or top and validates his hypothesis. The trader can then add subsequent units when his first unit shows him that he was right in his analysis by showing him black ink. Alternatively, the trader could hold his first unit and then add the second after his first shows him profit or at least after the market has started moving in his direction, depending on the extent of the adverse movement.
When you are averaging against a market you are hoping and expecting and predicting that it will turn, instead of waiting for a bottom or top in the making and then start initiating your position. You are by definition trying to catch a falling knife and whatever the opposite saying would be for catching a top. A bad practice and only for those who know what they are doing, which again, is a dichotomy, because I guess if one knew what one were doing one would not face this issue.
I`m not a scaler myself at this point, but I think the subject is worth discussing and I may of course be wrong. I just find it curious that I never see anyone adding to a winner here. If so, I may have missed it and I apologize in advance. ES may be a market that is more forgiving than other markets with this technique, but I`m still not sure it is a good idea. Scaling into a winner is not always a good idea either, but it is preferred, IMO. The best is of course to wait for the right time to enter and then simply enter.
Good trading all.
I am glad I don`t know how to average, because if I knew, I would have to unlearn that habit. If one can`t figure out the right entries, then one always have the choice to not enter in the first place.
Averaging a loser, i.e., selling a rising market or buying a falling market is ultimately a losing strategy. If not today, then tomorrow. Even if you are the house and can add to infinity against a strong directional movement, your small winner is still a loser compared to what could have been earned by being on the right side of the market, i.e., opportunity cost.
A thousand stops is obviously an exaggeration, but when entering around a reversal zone, one will not take that many stop outs and truth be told, a few stop outs on minimum size is not that painful, compared to getting stopped out at the turning point on maximum leverage. If the move have a good R/R to start with, one will quickly make back the losses and then some when one finally catches the move. There are different ways to work a turning point. One way would be to trail an order above/below the market.
I assume the correct way to average is within a tight predefined zone planned in advance and then taking the stop no matter what. It is still a flawed strategy, because one is setting oneself up to lose with maximum size and win with minimum size as the average averager usually scales out of his winners.
I wonder how high the win percentage needs to be in order to have positive expectancy with such a strategy? Cut your losses and ride your winners, not the other way around.
Good trading all.
LF, That is the way I'm trading too, but I"m conscious of Vol saying that when he started averaging in.... he caught more trades and his profit over time increased.
At least that is what I understood him to say.
All to often reality is different than logic.
Reguardless, I'm working more on getting tight/good entrys, so I'm not averaging in at this stage of where I"m at!
At least that is what I understood him to say.
All to often reality is different than logic.
Reguardless, I'm working more on getting tight/good entrys, so I'm not averaging in at this stage of where I"m at!
Quote from Laissez Faire:
Maybe I do, maybe I don`t. Regardless of that, what I do know for a fact is that from a money management perspective, it is a bad practice because your losers will be on maximum size and unless you have a plan for adding to your winners, those will be on your minimum size. One could probably get away with averaging down if it is within a tight pre-defined zone and the trader have the discipline to adhere to his original plan, but we all know how tempting it can be to change the plan when what was not supposed to happen, in fact, happened. I know very well myself, because I blew 70% of my swing trade account in stocks back in the day that I had built to a respectable size by not averaging down. Why? Because I averaged down on a leveraged trade that I simply had no intention of turning into a loss. I puked at the bottom of course and then bought the new top in anger. One of many painful lessons.
From the perspective of trading technique and not just money management, I also think averaging down is something any trader who is not facing liquidity issues should consider improving. Why? I assume that any trader who likes to scale in still believes that his first unit will show him a profit on the next tick. If not, it does not make any sense to enter at that price, no?
Now, I assume that the averager reasons that his first unit is at a potential turning point, but that there is a possibility that price will trade X points higher/lower before turning and thus justifies his actions of adding to his loss. What I have a little hard time understanding is why the trader is not willing to scratch his first unit for a small loss and then re-initiate his position at the next zone after price puts in a bottom or top and validates his hypothesis. The trader can then add subsequent units when his first unit shows him that he was right in his analysis by showing him black ink. Alternatively, the trader could hold his first unit and then add the second after his first shows him profit or at least after the market has started moving in his direction, depending on the extent of the adverse movement.
When you are averaging against a market you are hoping and expecting and predicting that it will turn, instead of waiting for a bottom or top in the making and then start initiating your position. You are by definition trying to catch a falling knife and whatever the opposite saying would be for catching a top. A bad practice and only for those who know what they are doing, which again, is a dichotomy, because I guess if one knew what one were doing one would not face this issue.
I`m not a scaler myself at this point, but I think the subject is worth discussing and I may of course be wrong. I just find it curious that I never see anyone adding to a winner here. If so, I may have missed it and I apologize in advance. ES may be a market that is more forgiving than other markets with this technique, but I`m still not sure it is a good idea. Scaling into a winner is not always a good idea either, but it is preferred, IMO. The best is of course to wait for the right time to enter and then simply enter.
Good trading all.
I am glad I don`t know how to average, because if I knew, I would have to unlearn that habit. If one can`t figure out the right entries, then one always have the choice to not enter in the first place.
Averaging a loser, i.e., selling a rising market or buying a falling market is ultimately a losing strategy. If not today, then tomorrow. Even if you are the house and can add to infinity against a strong directional movement, your small winner is still a loser compared to what could have been earned by being on the right side of the market, i.e., opportunity cost.
A thousand stops is obviously an exaggeration, but when entering around a reversal zone, one will not take that many stop outs and truth be told, a few stop outs on minimum size is not that painful, compared to getting stopped out at the turning point on maximum leverage. If the move have a good R/R to start with, one will quickly make back the losses and then some when one finally catches the move. There are different ways to work a turning point. One way would be to trail an order above/below the market.
I assume the correct way to average is within a tight predefined zone planned in advance and then taking the stop no matter what. It is still a flawed strategy, because one is setting oneself up to lose with maximum size and win with minimum size as the average averager usually scales out of his winners.
I wonder how high the win percentage needs to be in order to have positive expectancy with such a strategy? Cut your losses and ride your winners, not the other way around.
Good trading all.
Two posts worth reading a second time. Is there a quicker way to way blow out one's account than to add to losers? Speaking from experience, the answer is no. This plan is particularly deadly if you are trading against the trend. As LF correctly points out, if you win, you are likely winning with minimal size, but your losers are likely lost with considerably larger, maybe multiples larger, size.
Making a run into Xmas??
Dunno, but i trade what i see!
Good morning traders!
Dunno, but i trade what i see!
Good morning traders!
Bought 1216
Housing market Index @ 10:00am ET!
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