How much to add to a loser?

easymon1 said:
What triggers your Entry?
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Very good question, as the logic behind the entry must also dictate the logic behind the exit, in most cases.

For instance a breakout from a rectangle formation is no longer valid (or at least becomes suspect) if the price returns and stays inside the rectangle for more than 3 consecutive bars.
 
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I would stay away from avging into losers unless your trade was planned with a smaller starter of your position & your using a hard loss exit you will be sure to honor every time. Even than it's the Heroin in trading.

Averaging down plays into our hard wired loss aversion, this makes us want to pile into losers & commit to them while starving our winners. This is why humans make for lousy traders.

It seems to me the best traders have learned how to overcome this human nature, patiently waiting for asymmetrical trades with highly skewed reward-to-risk & fat tails piling in like real pigs, while dropping losers fast & furiously.
 
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comagnum said:
Averaging down plays into our hard wired loss aversion, this makes us want to pile into losers & commit to them while starving our winners. This is why humans make for lousy traders.
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Absolutely, trading is difficult precisely because it is highly counter intuitive and goes against our human nature.

comagnum said:
the best traders have learned how to overcome this human nature, they patiently wait for fat tails & & pile in like real pigs, while dropping losers fast & furiously.
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Indeed! :thumbsup:
 
Wrote down a quote from Elon Musk the other day since it relates to the psychology of trading.

This is why managing winners produces better results - your human nature is not working against you like it is dealing with mounting loses. When under stress our primitive Lymbic system hijacks our best reasoning/logic/plans.

"We operate on 2 layers, we have our primitive monkey side -the Lymbic system(impulsive, flight/fight), with a computer in our Cortex which is always trying to make the monkey side happy. It's not the Cortex that is doing the steering, the dumb thing controls the smart thing." Elon Musk
 
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comagnum said:
Wrote down a quote from Elon Musk the other day since it relates to the psychology of trading.

This is why managing winners produces better results - your human nature is not working against you like it is dealing with mounting loses. When under stress our primitive Lymbic system hijacks our best reasoning/logic/plans.

"We operate on 2 layers, we have our primitive monkey side -the Lymbic system(impulsive, flight/fight), with a computer in our Cortex which is always trying to make the monkey side happy. It's not the Cortex that is doing the steering, the dumb thing controls the smart thing." Elon Musk
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Lizard brain vs logical brain. Lizard part of our brain is much more powerful. One of the things it does is control our breathing even when we sleep. Lots of research on this.
 
I don't like adding losers but ... If you enter with a contract and the price goes in the desired direction, perfect, you are already in the market.
If the price makes a pullback but you think it's just that, a pullback, adding a new contract allows you to take advantage of a better entry price.
More than 2 contracts .....
I think it's dangerous
 
Adding to losers and adding to winners is the same thing. You are trying to time a top or bottom, or average up or down in what is a temporary move for or against your direction.

Averaging into a loser that then goes back up is exactly opposite to averaging into a winner that then goes down. The two will cancel each other.

There is no hard and fast rule.
 
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