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I would like to discuss averaging down
- Thread starter Daring
- Start date
Quote from ammo:
good point,it has to be a reversion stock or index, aapl for instance would kill the average down guy,great for averaging up, and reinvesting profits with stops
I don't think the inherited nature of the instrument is as important as it's current price action structure when studied in 2 or more timeframes. At some point every instrument qualifies, including AAPL.
Quote from Dustin:
You are failing to understand that averaging down in and of itself is an edge in certain trading conditions. In many trades I'm hoping the trade goes against me so I can get a full lot at a good AVERAGE price.
So since you declined my last request for five of your last trades where you averaged down... how about just one? Entries and exits. Just one example. If you state that there is a certain trading condition where it provides an edge... certainly you should be ready, willing and able to provide an example to support your thesis?
Quote from Dustin:
I am willing to pay good money for your crystal ball that picks tops and bottoms perfectly.
This is a straw man response. Never did I say anything about picking tops and bottoms perfectly. What I said was referencing "making mediocre initial entries that clearly have lower probabilities..". BIG DIFFERENCE.
Quote from Dustin:
It's a valuable tool in the toolbox.
I already stated that every trade should have a planned max size and risk potential.
You aren't getting the problem here.
By assessing your total risk (loss) in advance (which is very good in and of itself)... yet starting a position size that is considerably smaller than your full position-- you immediately put yourself at risk of having the trade go in your direction and skewing the risk:reward profile... which in turn drastically affects your profit factor. There is zero value in this.
if you use your imagination there are multiple advantages and disadvantages, ZERO value seems close minded,or maybe a skewed imagination,you can't think of one possible advantage?Quote from riffrafffpatrol:
You aren't getting the problem here.
By assessing your total risk (loss) in advance (which is very good in and of itself)... yet starting a position size that is considerably smaller than your full position-- you immediately put yourself at risk of having the trade go in your direction and skewing the risk:reward profile... which in turn drastically affects your profit factor. There is zero value in this.
Quote from ammo:
if you use your imagination there are multiple advantages and disadvantages, ZERO value seems close minded,or maybe a skewed imagination,you can't think of one possible advantage?
Look -- let' say price has deviated from a mean-- let's just say for example-- price falls outside 2 std deviations on a 15 min chart-- outside of approximately 96% of its normal distribution range. A large candle spikes through and significantly pierces a 20ema bollinger band-- into a level of demand where one can look to the left of the chart and see the last time price entered this demand "zone" (not a specific price... but an "area"... not an exact top/bottom)-- it spent little time at the level (indicating a major supply/demand imbalance) -- it left the level with large extended range candles (indicating momentum behind the move)-- and it ran up a significant distance from the level (indicating high profit potential). At the same time-- the indexes are all in demand on their 15 minute charts-- and on the larger timeframe the SPY has just touched the 200 SMA. Oh- and the stock is relatively strong to the market-- despite the downtick. I WANT FULL POSITION ON! I don't want a partial position! There is ZERO value in that. Why? Because the probabilities are extremely high that this trade will work. If it doesn't- I take my 1R loss and move on-- waiting for either the next high probability level below-- or getting back on board if price reverses and indicates the RTM is coming to fruition-- or simply move on to the next opportunity in an entirely different stock.
Now-- your rebuttal might be-- "well that's not the proper condition".
Well what would be a condition where there is value to adding to a losing position? Getting a small position in a stock that is relatively weak to the market? One that is showing oversold on lagging indicators... continuing to show "oversold" as price continues to drop? ZERO VALUE. Why? Because anywhere you can apply an example where averaging down worked-- in most cases it can be proven that the intial entry was not the proper entry in the first place-- and that the best trade was NO TRADE.
The only "value" is averaging down is it allows for sloppy entries... poorly planned trades... if you want to call that value. Averaging down provides comfort to the human condition and emotion that we don't want to be wrong... so therefore if we call it a "strategy"... that somehow it eliminates being wrong... or at the least prolongs the inevitable. ("I actually WANTED price to go down... I WANTED it to go against me".... pleeeease!!!) And when it works- a trader gets to say "look at me.. I played that great! Look at me... what a great strategy".... failing to realize that if he/she had just exited and re-entered with full position that the profit wouldv'e been much higher. It is a fools game plain and simple.
"Death by 1000 cuts"??? With sloppy entries-- of course it is a slow and painful death.
Give me some examples AMMO where you have used it. Prove your thesis.
Quote from ammo:
if you use your imagination there are multiple advantages and disadvantages, ZERO value seems close minded,or maybe a skewed imagination,you can't think of one possible advantage?
People view this too simplistically.
You should ALWAYS be:
(a) building a hedged position (pair)
(b) scalping continuously both long and short sides
(c) doing so with a high degree of Automation
So before you finally exit a good one...
You've made 100 or 200 trades or more over several days...
With only a minority manual.
So this would involve averaging down/up both sides...
But in a non-linear manner...
You typically buy less and less on the way down/up...
Plus there must be a point where you throw in towel and just get out.
Then you extend this to dozens of pairs...
So you are continuously scalping long/short baskets...
Then maybe ya got something to write home about.
Quote from Daring:
Well a board veteran just testified that without averaging down he would be working at Burger King, and if you did your homework, as I did, Dustin is one of the most illustrious members of this board.
I think there is a difference between averaging down with a max loss in mind and averaging down into infinity, which is precisely what Dustin stated.
Like I posted on the beginning of this thread, one of the worst aspect of trading, at least for me, is when price goes into chop mode, this kills traders using fixed small stops, and especially with low volatiity, chop is more present than ever, this is something averaging down takes care of.
Obviously, a good knowledge of market structure is required to average down correctly, and according to experienced traders statements, the ability to average up correctly once things go your way, instead of taking profits is also imperative and no less important.
I got a lot to study, but I am grateful these people are pointing me in the right direction.
Once again, feeling comfortable with your trading style is important to perform with peace of mind. Frankly, I'm just tired of getting stopped over and over again because price became directionless, getting stopped when you not even wrong on direction, is a sin, except for brokers of course, so just trying to adapt a trading style that is compatible with myself, while becoming consistently profitable.
Just trying here, just trying.
You have two big problems that are far more pressing to address than whether/how to average down:
1). You have no edge (if u did- u would know it).
2). You need to stop entering trades within the chop.
Every day-- I dont car if its an inside day...outside day... gap and run... gap and fade... bear/bull market or any other type of market you can describe--- there will always be periods of chop--- ye there will also be periods where there isn't. This is where you need to trade your edge. But first- you need to get one.
Once you do- I can practically guarantee you that averaging down will be the furthest thing from your consideration.
Stops do NOT occur at "inconvenient" times... quite the opposite if you have an edge.