Risk Management is the answer

[murray t turtle]

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.

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I STILL think it mostly means that;
but big differences in the way its done.
AUM long managers could average down a lot on a single stock + may get by with it, since paid on gross AUM .
But even on a trade, could be wise, if it cant clear, say 200dma , on a short or inverse ETF; it can be a part of a battle tested plan= better than putting it on ALL @ once.
Assume a time stop or another stop loss here+ i'm not talking on this trade with stupid stuff like never cutting loss. Part of a plan.
Averaging up makes even more sense on a big winner; even though largest is on @ reversal.
Even on a inverse ETF daytrade i see no advantage try in to put it ALL on @ once; but i seldom use 1 minute chart+ dont trade mainly off bid\ask.

 

[syswizard]

Averaging up makes even more sense on a big winner; even though largest is on @ reversal.

What is your logic for averaging up ? For instance, when do you add a contract ?

 

[murray t turtle]

What is your logic for averaging up ? For instance, when do you add a contract ?

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Exactly/ since cant really predict it;
but its an average % risk per total account.
THAT may not work with ES, but CME has already disclosed 20% would RECKless+ ES was designed to trade.
I trade+ invest with ETFs that i never would[or could] have a forced sale on.
IT'S the same coin so to speak\
+cut back if i dont like my Profit + l .
I like the way IBD + Dave Ramsey teaches buy mutual funds every month,[30 year millionaire or multimillionaire ]but i dont do it exactly like that; even though i've done a modified version of that in real estate.
THEY also do non USa markets much more than me; fine with me.

 

[Courtney21]

I think risk management is a good option if you don't want to lose capital you've worked so hard to earn. However, risk management won't guarantee you any profits. Your trading strategies and knowledge are what will enable you to gain good trades.

 

[murray t turtle]

I think risk management is a good option if you don't want to lose capital you've worked so hard to earn. However, risk management won't guarantee you any profits. Your trading strategies and knowledge are what will enable you to gain good trades.

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Good ;
+ the other side of the coin follows. LTCM used insane leverage[unwise risk management] + blew up.
I think WBuffet offered them $250 million for the whole fund; but his one hour time limit expired, before they responded rightly??

 

[tomCooper]

to make a perfect risk management is really a challenging issue , need a very long time experience with good capability. so newcomers always fail to build a strong risk management.

 

[Tintin23]

Great topic, learned something here

 

[murray t turtle]

Risk management is ultimately what you can control. Attempts at controlling the profit you make by taking more risk is account suicide.

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Exactly/ except in a up-trending bull market, which we are not in
But like the Billion Buck hedge fund manager said , ''never risk more than you can afford [or want]to lose''.
IBD has some good lessons on adding 4 great places in an uptrend\ but the IBD chart only shows 3.
So 2 or 3 maybe much better. Of course a fund/huge fund has to do it with 4 or more........

 

[TrAndy2022]

With scaling in using a trailing Drawdown a trader can increase his chance to be profitable. Table enclosed here for illustration how one trade can make the difference. You see Money Management is even more important than Risk Management based on the P&L outcome. But of course Risk Management is important too.

 

[syswizard]

With scaling in using a trailing Drawdown a trader can increase his chance to be profitable.

I understand this statement, but I don't "get" each of the columns in the table.