is there ever a good time to average down?

wxytrader said:
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Out performing the Renaissance fund! :)
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That's not a cellphone pic. I'm sure your trade blotter would make for some "interesting" viewing,especially for the options guys.
 
I use to average down 8 levels since most of time I was early. Stats would show based on original entry having of 1 or 2 losing days a year. Averaging down I would lose twice a year losing 6 weeks of profits each but overall make 180% more than trading one price. That was great to do when younger, now it not about wild equity curves but consistency and adding size and markets.

I never recommend to ave down.
 
Adding onto winners you can increase profits by multiples without increasing risk. This is edge to the max when your exploiting profits. It is not easy & this is a more advanced skill that takes a lot of experience.

Adding on to losers is a bad habit that puts most on the road to ruin. The root cause is typically from using way to much size with no loss exit planned or honored. As a loss spirals down they pile in with hopes of breaking even. Only a matter of time to eat catastrophic losses you can't come back from.

Some, but not many do avg down and still keep their losses small - this is also an advanced skill. Novices trying this are likely to go down in flames.
 
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I think this approach only can be viable if the distribution of (future) expected trade outcomes is skewed to having a low probablity very high payoff, and high probability small losses. Mathematically - and perhaps logically - this would make sense
 
comagnum said:
Adding onto winners you can increase profits by multiples without increasing risk. This is edge to the max when your exploiting profits. It is not easy & this is a more advanced skill that takes a lot of experience.

Adding on to losers is a bad habit that puts most on the road to ruin. The root cause is typically from using way to much size with no loss exit planned or honored. As a loss spirals down they pile in with hopes of breaking even. Only a matter of time to eat catastrophic losses you can't come back from.

Some, but not many do avg down and still keep their losses small - this is also an advanced skill. Novices trying this are likely to go down in flames.
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How are you multiplying profits when you are raising your avg price? lol
Obviously the skill is not to buy at the top and start averaging down from there, but even then averaging down is better than closing the position or just holding.

I already proved this with data using SPY...it's not even up for debate lol.

Here is the proof. :)

wxytrader said:
These are the results if you bought SPY at the top on Dec30 2021 and averaged down the whole drop.

In 1 year your position is worth 275k so a return of 25K (10%)
Today its worth around 325k with a return of 75K (30%)

Do you think you can outperform 30% by making 4 trades in 2 1/2 years? It works out to returning $2500 per month. And technically you weren't all in until late 2023 so its even a better than that.

Plus SPY's dividend would have paid you an additional $342 per year lol.
At 5% dividend you are making $1035 per month. So buying, averaging down and holding returns better than any dividend stocks, better than bonds, and carries no risk. :)


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(I shouldn't have to mention that averaging down on a stock is not recommended without limiting risk via size.)
 
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retrospectively averaging down was almost always an ego play in my trading
now I focus more on squeezing all the juice the market offers. Seems a lot better way to survive in the game
 
Shocking as it may be, I agree with WXY trader on averaging down. If you do it on something that can't go to zero, in small size, in such a way that it gets you psychologically invested in the price action - you then become your own contrary indicator. You go in with size after your first buy(s) make you want to scream in pain!
 
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