I still don't understand how averaging *up* is profitable

I

IronFist

YM is on a huge uptrend since about 11:30 CST. Since I can't call bottoms, I started entering after a few HHs and HLs, adding 1 contract after every HL. It was pretty rad, I was up $800 at one point, and then one red bar blew me out.

I'm not saying that averaging *down* is good (even tho I know of at least 2 traders on this site who do it successfully), but averaging up seems like a small move against you will wipe out your huge earnings (kind of like how in averaging down you have huge drawdown and then a small up move = profit). I had huge earnings and then a little down move turned it into a loss.

In all my backtesting (of trendfollowing systems) I've never seen how anything other than constant lot sizes is profitable. Even ET's favorite "close x% of your position after y ticks, move the stop to breakeven (or breakeven +1) and let the rest run" backtested negatively because when losers occurred, they occurred with a larger size than the winners

I know some people here advocate averaging up as the holy grail. Have you guys run mathematical models supporting this? Seems like it would be iffy at best in trends, and death in chop (as averaging up in chop would undoubtedly cause you to be averaging in right as price reverses).



edit - unless you can call tops. Then I could've walked away with my $800 profit before that nasty red bar :)
 
Quote from IronFist:

YM is on a huge uptrend since about 11:30 CST. Since I can't call bottoms, I started entering after a few HHs and HLs, adding 1 contract after every HL. It was pretty rad, I was up $800 at one point, and then one red bar blew me out.

I'm not saying that averaging *down* is good (even tho I know of at least 2 traders on this site who do it successfully), but averaging up seems like a small move against you will wipe out your huge earnings (kind of like how in averaging down you have huge drawdown and then a small up move = profit). I had huge earnings and then a little down move turned it into a loss.

In all my backtesting (of trendfollowing systems) I've never seen how anything other than constant lot sizes is profitable. Even ET's favorite "close x% of your position after y ticks, move the stop to breakeven (or breakeven +1) and let the rest run" backtested negatively because when losers occurred, they occurred with a larger size than the winners

I know some people here advocate averaging up as the holy grail. Have you guys run mathematical models supporting this? Seems like it would be iffy at best in trends, and death in chop (as averaging up in chop would undoubtedly cause you to be averaging in right as price reverses).



edit - unless you can call tops. Then I could've
walked away with my $800 profit before that nasty red bar :)
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smooths out your curve doesnt make you more profitable
 
I wrote a progra. to check on averaging down, and that is unprofitable. Averaging up IS profitable but it needs to be done correctly. You should always pyramid bottom heavy, reducing each subsequent position relative to the previous one.
 
Quote from showyouwang:

I wrote a progra. to check on averaging down, and that is unprofitable. Averaging up IS profitable but it needs to be done correctly. You should always pyramid bottom heavy, reducing each subsequent position relative to the previous one.
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its the way you did it.... averaging down give the chance to be unprofitable but also smooths out ur curve
 
I think of pyramiding as more of a concept for position trades. That way you get your biggest concentration in the biggest winners. There are different approaches, but I think it would be common to add only after the trade had gone in your favor enough so that your worst case exit would be b/e. Ideally, you add on a pullback.
 
There are many variables to such a strategy, but in a nutshell:

A solid trend being in place would be required on a given time frame, and adding in could be done on smaller time frame pullbacks to the larger time frame trend. Personally, I won't add to a play unless I have taken partial profits prior to, and above or below the new entry point at the pullback (in the smaller time frame). When I do, the end result is turning winners into losers more times than not...especially trading intra day. When the instrument is basing in a given time frame, it is an unusable strategy...in my opinion.
 
Quote from IronFist:

YM is on a huge uptrend since about 11:30 CST. Since I can't call bottoms, I started entering after a few HHs and HLs, adding 1 contract after every HL. It was pretty rad, I was up $800 at one point, and then one red bar blew me out.

..... but averaging up seems like a small move against you will wipe out your huge earnings (kind of like how in averaging down you have huge drawdown and then a small up move = profit). I had huge earnings and then a little down move turned it into a loss.

In all my backtesting (of trend.......

I know some people here advocate averaging up as the holy grail. Have you guys run mathematical models supporting this? Seems like it would be iffy at best in trends, and death in chop (as averaging up in chop would undoubtedly cause you to be averaging in right as price reverses).
More...
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Iron fi;
Sure some [planned, well researched adding in a bull market];
But-DIA [cash] is in a sideways trend or bearish, below50 dma to be a bit more precise. So could be the worst idea i have ever heard.

Hope you grasp this;
big difference in a bull or bear market[not really defined intraday],
averaging ''up'' in a bear market sounds ultra silly @ best

So, your instincts are right [NOW];
bear is worst time to average up.Glad i learned how to trade stocks 1st, not learn on leveraged derivatives...................................................... Good question,IronFi.:cool:
 
Adding to a position in an uptrend makes more sense than adding to one in a downtrend. Liquidate the entire position when it your stop is hit for the last add.
Adding in a downtrend is logical if your holding period is infinity or if you're Warren Buffett.
 
Quote from rozar s'macco:

Adding to a position in an uptrend makes more sense than adding to one in a downtrend. Liquidate the entire position when it your stop is hit for the last add.
Adding in a downtrend is logical if your holding period is infinity or if you're Warren Buffett.
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no adding more to a downtrend makes more sense.
 
Look at the turtle trading system some more and you'll understand adding in an uptrend. It's got to be a big uptrend is the thing with that system, and you've got to have rules and be willing to be stopped out more often than not.

It also makes sense to add if there's a clear target but you weren't sure exactly when the rise/fall toward that target was going to start (you thought you might have gotten in on a wiggle), but you caught the move. Or, if volume and momentum increase a lot on the move you're in.

You can scale out, too, if you add, nothing has to be all or nothing, and the reason it's hard for anyone to tell you the "right" answer is because there are many (and even more wrong ones lol).
 
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