Never add to a losing position?

Quote from spindr0:

As a trader, I'd sooner scale in as the underlying ramps up, running a tight stop. Adding more to a falling position is a recipe for disaster.
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There does not seem to be any simple answer. following all the published rules doesn't seem to work either. you can probably average down in some intelligent fashion only if certain conditions exist. e.g. if original reason for getting into trade still exists.
 
Quote from StillStanding:

There does not seem to be any simple answer. following all the published rules doesn't seem to work either. you can probably average down in some intelligent fashion only if certain conditions exist. e.g. if original reason for getting into trade still exists.
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you also have to consider what you are trading. averaging down on individual stocks is risky. averaging down on indexes and even etfs not so much.
 
Quote from fkbsuhites:

A guy on ET $CostAverageMAN took his 30 million account to 3 million averaging into the 2008/2009 plunge. He's now permanently "retired".
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I remember his thread, I don't recall him post about such disastrous losses though. Do you have a link to a post by him? Or what other info are you basing the above on?
 
If you trade fundamentally, averaging down makes sense. You are betting on something solid: company earnings, future products.......That's perhaps what investment is understood traditionally, the Warren Buffett way.

If you trade technically, you need to compare the gain and loss of averaging down and cutting loss.

Scenario 1: You buy a stock at $20, and it drops to $18. You double up. When it goes back to $19, you sell and breakeven.

Scenario 2: You buy a stock at $20, and it drops to $19.50. You sell and take a loss of 50 cents. When it drops to $18, you buy. When it goes back to $19, you sell and make $1. Subtracting the loss, you have a profit of 50 cents.

Scenario 3: You buy a stock at $20, and it drops to $19, you sell and take a loss of $1. When it drops to $18, you buy and then sell at $19. You breakeven.
 
Quote from makloda:

I remember his thread, I don't recall him post about such disastrous losses though. Do you have a link to a post by him? Or what other info are you basing the above on?
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that guy never posted any losses.
 
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