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I would like to discuss averaging down
- Thread starter Daring
- Start date
Quote from Daring:
If I understand correctly, you are the oppposite of Ammo, no shorts, just longs, correct?
Correct, though reading the news every day, I am always tempted to flip that method upside down and sell high instead, scaling short into strength and then gradually buying into weakness. The advantage of that approach is that you are probably protected from bad news, black swan terrorist events and flash crashes. And, when the market does sell off, it often goes down faster than it goes up.
But as long as the stock market looks like the only game in town (I don't do the metals), to make money, and corporate profits don't fall off the cliff, I'll continue to buy the dips because that has been what has been working for me for years. The one type of selling that I avoid dip buying during is the really steep panic selling - try and sit on hands during that. Subjective of course .....
Quote from heywally:
Correct, though reading the news every day, I am always tempted to flip that method upside down and sell high instead, scaling short into strength and then gradually buying into weakness. The advantage of that approach is that you are probably protected from bad news, black swan terrorist events and flash crashes. And, when the market does sell off, it often goes down faster than it goes up.
But as long as the stock market looks like the only game in town (I don't do the metals), to make money, and corporate profits don't fall off the cliff, I'll continue to buy the dips because that has been what has been working for me for years. The one type of selling that I avoid dip buying during is the really steep panic selling - try and sit on hands during that. Subjective of course .....
Look folks- it all comes down to the old cliche- "you can't have your cake and eat it too".
Translated - you can't expect to have maximum profit potential if your intent is to scale in with small size... "hoping" that price continues to drop so you can get an overall "lower" average price by adding additional "units". News flash: if you are successful in achieving your max size --guess what? YOU PAID TOO MUCH!!! Heelllo...???? Most of the proponents of this strategy seem to justify it with the caveat - "as long as 'max risk' is taken into account"... as this makes it seem that responsible trading is being heeded. Someone explain to me how this can be so-- and at the same time maintaining a sound and consistent risk:reward profile? Someone prove that it doesn't skew profit factor? Because there will be plenty of times when price goes in your desired direction - yet you only have a tenth of your position on.
No one said it doesn't work. Of course it "works"... but that is relative. It simply falls well short of the mark compared to the alternative of max position in at the highest probability locations... with max profit potential. Averaging down at its best -- is a piss poor weak alternative for those who are disciplined to cut bait at max loss rules... at its worst is a recipe for a catastrophic account blow up when max risk rules are ignored. In general - it is a strategy that caters to the human emotion of not wanting to be wrong.
Feel free to chastise me... mock me... ask me 'who made me the expert' blah blah blah and every other type of subjective attack you'd like -- it will just reinforce the obvious -- you cannot prove it to be an optimal system. No one has been able to do it yet. I have given you plenty of reasons however why it is not.. none of which have been refuted yet.
Daring-- if u truly have an open mind -- stop hearing what u want to hear from the likes of ammo dustin et al...as if their tenured status on ET and "good trader" status has anything at all to do with whether it should be considered worthy or not of consideration... think logically about this instead-- the answers have been right before you all along.
that's the first sensible thing you have posted. And I agree with all that. Except for the max size part. Some of us hope we never actually have to put max size on. It is just dry powder in case. And don't rule out the importance of human emotion.Quote from riffrafffpatrol:
Look folks- it all comes down to the old cliche- "you can't have your cake and eat it too".
Translated - you can't expect to have maximum profit potential if your intent is to scale in with small size... "hoping" that price continues to drop so you can get an overall "lower" average price by adding additional "units". News flash: if you are successful in achieving your max size --guess what? YOU PAID TOO MUCH!!! Heelllo...???? Most of the proponents of this strategy seem to justify it with the caveat - "as long as 'max risk' is taken into account"... as this makes it seem that responsible trading is being heeded. Someone explain to me how this can be so-- and at the same time maintaining a sound and consistent risk:reward profile? Someone prove that it doesn't skew profit factor? Because there will be plenty of times when price goes in your desired direction - yet you only have a tenth of your position on.
No one said it doesn't work. Of course it "works"... but that is relative. It simply falls well short of the mark compared to the alternative of max position in at the highest probability locations... with max profit potential. Averaging down at its best -- is a piss poor weak alternative for those who are disciplined to cut bait at max loss rules... at its worst is a recipe for a catastrophic account blow up when max risk rules are ignored. In general - it is a strategy that caters to the human emotion of not wanting to be wrong.
Feel free to chastise me... mock me... ask me 'who made me the expert' blah blah blah and every other type of subjective attack you'd like -- it will just reinforce the obvious -- you cannot prove it to be an optimal system. No one has been able to do it yet. I have given you plenty of reasons however why it is not.. none of which have been refuted yet.
Daring-- if u truly have an open mind -- stop hearing what u want to hear from the likes of ammo dustin et al... think logically about this instead-- the answers have been right before you all along.
For me to trade the way you do would be reckless because I have not mastered the science of picking tops and bottoms. So I just have to get by the best I can averaging down, and I am comfortable trading a second best strategy since it has been consistently profitable (even though at somewhat less ROI if I knew what you know.)
Quote from oldtime:
that's the first sensible thing you have posted. And I agree with all that. Except for the max size part. Some of us hope we never actually have to put max size on. It is just dry powder in case. And don't rule out the importance of human emotion.
For me to trade the way you do would be reckless because I have not mastered the science of picking tops and bottoms. So I just have to get by the best I can averaging down, and I am comfortable trading a second best strategy since it has been consistently profitable (even though at somewhat less ROI if I knew what you know.)
To clarify - when I speak of "max size"... all I am referring to is the maximum # of shares/contracts that allow for a max of 1R loss if proven wrong.
And rarely do I ever catch perfect top or bottom- this is why I map zones out - high probability "areas"... a big difference. Outside of the zone is where Im wrong... so the distance from entry to stop loss is the key to determining what the max position will be for worst case 1R scenario. I have no reason to not stay consistent with this. Last thing one wants is to be right 4x in a row at .5R and then wrong 2x at 1R for example.
yeah, that makes sense, but I am working over much longer times. So my trade may cover several of your zones.Quote from riffrafffpatrol:
To clarify - when I speak of "max size"... all I am referring to is the maximum # of shares/contracts that allow for a max of 1R loss if proven wrong.
And rarely do I ever catch perfect top or bottom- this is why I map zones out - high probability "areas"... a big difference. Outside of the zone is where Im wrong... so the distance from entry to stop loss is the key to determining what the mac position will be for worst case 1R scenario.
It makes very little difference to me if I hit the target with one unit or ten units, since the target is always the same dollar amount. As a matter of fact, what matters most to me is the time it takes to hit the target. The quicker, the higher the return (if I can find something else to put on in a reasonable amount of time.)
Quote from oldtime:
yeah, that makes sense, but I am working over much longer times. So my trade may cover several of your zones.
It makes very little difference to me if I hit the target with one unit or ten units, since the target is always the same dollar amount. As a matter of fact, what matters most to me is the time it takes to hit the target. The quicker, the higher the return (if I can find something else to put on in a reasonable amount of time.)
Of course - opportunity loss by being tied too long in a trade can be huge.
So you have a profit target then... obviously if you can get to 10 units u need considerably less movement...but what about during those times when u only have one or two units- u need much more movement correct? Do u utilize a time stop if too many roadblocks along the way stall the move...and just move on?
no, not really, as a matter of fact the more size I have on the farther away I am from the market, so that is when I need movement.Quote from riffrafffpatrol:
Of course - opportunity loss by being tied too long in a trade can be huge.
So you have a profit target then... obviously if you can get to 10 units u need considerably less movement...but what about during those times when u only have one or two units- u need much more movement correct? Do u utilize a time stop if too many roadblocks along the way stall the move...and just move on?
But yes, if it stalls out, I will just take a profit, even if it hasn't hit my target. And sometimes in the middle of a trade, things change and I take the other side.
If I am reading the market well, there is no adding to either winners or losers, it just moves as I hoped it would and I take my profit, deal done.
Quote from oldtime:
no, not really, as a matter of fact the more size I have on the farther away I am from the market, so that is when I need movement.
But yes, if it stalls out, I will just take a profit, even if it hasn't hit my target. And sometimes in the middle of a trade, things change and I take the other side.
If I am reading the market well, there is no adding to either winners or losers, it just moves as I hoped it would and I take my profit, deal done.
Ok gotcha..makes sense.
offering 57,58,59,60 es..57 is a nip from friday and 60 is a tl ,dont know which is a top ,if either but it's a zone i think will meet sellers,so selling the average, that is an add on to an existing position that was reduced for a profit while waiting for the chart to fill in the gap down to 32 area...simple ..for those not wearing blinders ..not right or wrong, just a way to trade using averages,there are many ways to trade http://imgur.com/MiB2f