I always thought averaging down meant adding to a loser regardless of direction (long/short). And averaging up meant adding to a winner, i.e., adding more units on rising prices on a long and vice versa on a short.
In short averaging down is the process of adding to a position as it goes counter to your original position.
I often refer to it as averaging down regardless of if it is done on a short trade or a long trade.
However, technically averaging down is the correct terminology when adding more longs to a losing long position. Some even refer to this as scaling in. More palatable than averaging down ROFLMAO. Averaging up is the correct terminology when adding more shorts to a losing short position. I suppose it becomes whatever one's preference is on the terminology.
I just refer to both as averaging down. The thing to remember is
the heart of averaging down is simply adding more to a losing position. This brings BE, in either scenario long or short, closer to the present price and of course price needs to travel LESS distance in your favor to get you back into profit.
Scaling up is adding to a position (you are increasing your position size) as it works IN your favor. Some may refer to it as "pressing a trade." This can be done on both the short and long side. This technique works better in larger moves but is extremely difficult to pull off in scalping because of "price probing." Price probing (which many will call noise LOL) will whipsaw a trade wiping out your profits on your scaled up entry as well as your original entry, therefore magnifying one's losses. But it is useful in larger swings. So, HERE in scaling up you are basically adding to your winners.
Adding to a losing position in scalping works better than scaling up because of the same phenomena i.e., "price probing." Think about why! Nevertheless, in any type of adding to a losing position, short or long, a prudent trader must have their "MAE movement SL exit point" clearly defined and TAKE IT if hit, otherwise, losses grow exponentially.
Scaling out is reducing your position size in steps, locking in profits. Some traders even scale out (reduce their position size) as a trade goes against. Thus locking in their losses ROFLMAO. It does decrease their exposure to mounting losses in the event the market doesn’t turn back in their favor.
Averaging down not only
decreases the distance one's trade has to move in their favor to become profitable, but it also
increases profit potential if price goes in your direction, and
it increase chances of a successful trade thus rendering a
higher win rate. All four I deem as important in the scalping world.
