Quote from Dustin:
Yep, 15 years of pure luck here. If that's the case I'll take it over skill any day 
Here's my point:
At some point-- your average down entry FINALLY found a level in which price FINALLY turned. In most cases-- there is not a shred of doubt in my mind that you could go back and look at the charts in multiple time frames... look at the relative strength/weakness from prior close and from the open and compare it to the indexes... determine where supply/demand was on the indexes--- and deduce that you should have NEVER executed your first 2 or 3 entries... that the highest probability level was indeed your last entry.
It is asinine to sell the idea of averaging down works-- when you are making mediocre intial entries that clearly have lower probabilities... you should never have entered in the first place initially!
Think I'm wrong?
Give me your last 5 trades where you averaged down multiple times-- exact time of entries and exits... and I will break it down for you. Without a doubt you will deduce that had you taken a stop loss at a point on the chart where FIRST PROVEN WRONG (which incidentally is the smallest loss).... and then re-entered based on the area on the chart that you identified in advance as the high probability level of a turn-- that your profit would be exponentially higher over time. Oh... the trade turned before it hit that point? BIG DEAL... there are ALWAYS other opportunites... move on... simple as that. However the fact that you had to average down in these scenarios in the first place means that you are indeed looking at the stocks that WILL get to that higher probability level more often than not.
And by the way- you said you took 2 $ 10k losses this year. Break it down as a % of your account. Compare it to your average winner. And then provide your win/loss ratio. Let's do the math on the actual impact here.
The novice reading this thread is being severely misled.
At least oldtimer provides the disclaimer that is the essence of why averaging down is extremely high risk-- I believe his verbiage was that the "setbacks are HORRENDOUS". Horrendous. That is what blows up an account. It's not small losses. If you have an edge-- your probabilities easily negate small losses. Probabilities do not negate catastrophic losses relative to account size... not to mention the psychology impact.
The only way... and this is the only way-- that averaging down makes sense from a pure risk perspective- is if you predetermine in advance how many entries maximum you will make... and determine the exact stop loss extreme location where you will be out of the trade in its entirety...IF the stop loss $ amount is equal to your maximum loss that you are risking on EVERY trade. The problem herein however lies with the fact that your profit potential is significantly diminished by the lower position size if price turns well in advance of your planned entries... skewing your profit factor.
