I would like to discuss averaging down
- Thread starter Daring
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Unless you`re God and have infinite capital, averaging down is a very bad idea.
In a worst case scenario, you end up breakeven after averaging down through a monster move which you should have been on the opposite side of. And that is if you have deeper pockets than God!
Most people don`t have such deep pockets, so even with a 90% win rate, they risk giving it all back on that last stupid trade.
In a worst case scenario, you end up breakeven after averaging down through a monster move which you should have been on the opposite side of. And that is if you have deeper pockets than God!
Most people don`t have such deep pockets, so even with a 90% win rate, they risk giving it all back on that last stupid trade.
If I was God I wouldn't need to average in. I could just simply buy at the bottom. If you don't believe me, just ask him. He was the one who revived this thread and insisted we all needed to be saved.Quote from Laissez Faire:
Unless you`re God and have infinite capital, averaging down is a very bad idea.
In a worst case scenario, you end up breakeven after averaging down through a monster move which you should have been on the opposite side of. And that is if you have deeper pockets than God!
Most people don`t have such deep pockets, so even with a 90% win rate, they risk giving it all back on that last stupid trade.
Study Jesse Livermore.
He had a system where he added subsequent units and accumulated his total line at progressive prices, as the market proved his analysis correct, i.e., buy a rising market and add as price rises (bid 100, next bid at 101, 102, etc), sell a falling market and add subsequent units as price falls.
Did you guys know that Jesse Livermore actually once lost all of his stake when he liquidated a winning position in order to finance a losing position where he kept averaging down until he was broke?
Losers average losers. And Jesse would agree.
He had a system where he added subsequent units and accumulated his total line at progressive prices, as the market proved his analysis correct, i.e., buy a rising market and add as price rises (bid 100, next bid at 101, 102, etc), sell a falling market and add subsequent units as price falls.
Did you guys know that Jesse Livermore actually once lost all of his stake when he liquidated a winning position in order to finance a losing position where he kept averaging down until he was broke?
Losers average losers. And Jesse would agree.
yes, that is exactly how I went broke the first time. The problem wasn't with averaging, it was with me.Quote from Laissez Faire:
Study Jesse Livermore.
He had a system where he added subsequent units and accumulated his total line at progressive prices, as the market proved his analysis correct, i.e., buy a rising market and add as price rises (bid 100, next bid at 101, 102, etc), sell a falling market and add subsequent units as price falls.
Did you guys know that Jesse Livermore actually once lost all of his stake when he liquidated a winning position in order to finance a losing position where he kept averaging down until he was broke?
Losers average losers. And Jesse would agree.
But I agree, most traders should just stick to guesssing where the bottom or top is and leave the averaging to more skilled money managers.
Averaging down may on average work if you have strict rules and a strict game plan, but I seriously doubt anyone can make serious money by consistently averaging down and in the long run the averager will probably get wiped out by that single trade that gets out of control for whatever the reason. Could be a black swan or lack of discipline when what was not supposed to happen, happened and the trader starts hoping.
Your losses are always on maximum size.
Sure, you have a high win percentage, but how much are you really winning? And how much are you losing?
There is also an opportunity cost involved if you are constantly finding yourself on the wrong side of the market.
Your losses are always on maximum size.
Sure, you have a high win percentage, but how much are you really winning? And how much are you losing?
There is also an opportunity cost involved if you are constantly finding yourself on the wrong side of the market.
I assume the "correct" way to average is within a tight pre-defined zone planned in advance and then executing the stop if hit, not keep moving it since "you`re right and the market is wrong". 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 and does not seem to add to his winners.
And that is assuming the trader is actually disciplined enough to follow the plan. I blew a large part of my first account by averaging down on a trade that went out of control.
Is it not better to risk a few stop outs on maximum or small size and then take the final position on maximum size or add as the market moves in your direction?
And what about position sizing? If a trader builds his capital by averaging and scales up, he will take his new losses on new maximum size. Can he handle that? Or will he blow it all away when he faces the losing streak?
And that is assuming the trader is actually disciplined enough to follow the plan. I blew a large part of my first account by averaging down on a trade that went out of control.
Is it not better to risk a few stop outs on maximum or small size and then take the final position on maximum size or add as the market moves in your direction?
And what about position sizing? If a trader builds his capital by averaging and scales up, he will take his new losses on new maximum size. Can he handle that? Or will he blow it all away when he faces the losing streak?
let's say you are a bull.
you get long and get stopped out
then what? look for a better place to get long? You just got stopped out at a better place to get long.
If I get stopped out and allow it to move down one more tick and put it back on with a stop would that make you happy? Because then I am not technically averaging down.
you were correct the first time. Size is everything. How much to start with? How big to get to?
Usually, the same guys that can't understand averaging also can't understand size.
Yep they are still "pivots"... or "swing highs" as in ZR's example... this is all just semantics really. Price may not revisit the area for 5 hours intraday/2 days/3months/4 years/etc.... however if/when it finally does-- it can be an actionable area to trade against.
This pivot represents for me my extreme "supply zone" top line that I will draw on my chart. The beginning of my "zone" is represented by another line drawn below... typically either based on the bottom of the wick (the top of wick is the pivot) from the pivot high candle in my timeframe if the candle body is relatively large, or the bottom of the candle body if the distance is not too wide from the pivot. In the end-- the width of the zone really just comes down to how extreme do I want price to get before considering a trade. Some may have a rule that states "always wrap zone lines around top candle wick for supply zone"... I prefer not to limit myself like this... as certain zones would rarely be put into play due to the area being too tight.
I look for key criteria when considering whether to use a pivot for my zones based on the candle action. This is so critical that an entire book could be spent on the subject. Understand that pivots fall under the same category as traditional "support/resistance" lines. Well.. what is often said about them? "Sometimes they work/sometimes they dont... you cant really rely on them (or something to that effect/essence). "Support/resistance" also comes into play with the topic of breakouts right? What is often said about them? "Some work/some don't". These generalities lead most to believe they are not reliable. In and of themselves I wholeheartedly agree. The key is finding the common denominator characteristics that occur when the do work (speaking of both countertrend reversals and breakouts that use pivot points of reference).
My apologies ammo - I seriously thought you were being difficult when you kept asking the same question ovef and over.