The bottomline is that you have to understand WHICH markets you can pull off the averaging down methodology. The price structure of stock index futures (the vast majority of the time) is going to be mean reverting and enable a profitable exit on the scale (typically on the scale down buy, not the inverse). Do not attempt in crude oil, nor in various other commodities as they do not have this sort of price structure.
Tell me why averaging down is a bad idea .
- Thread starter joker542
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The bottomline is that you have to understand WHICH markets you can pull off the averaging down methodology. The price structure of stock index futures (the vast majority of the time) is going to be mean reverting and enable a profitable exit on the scale (typically on the scale down buy, not the inverse). Do not attempt in crude oil, nor in various other commodities as they do not have this sort of price structure.
And I agree with that also. There was some post I made a long time ago here, which pointed out those times. The most common one was the 10:30 AM reversal. On average, that is the best time to look for a shift in market behavior. But damn, when it goes wrong, it goes wrong hard many times. You wind up finding yourself in a true full trend day for a LOT of points.
It is a pattern I started to recognize, and was getting good at. Unfortunately I could not make use of it today because the Jackson Hole thing has me ferklempt. Just imagine what we'll know tomorrow.
Bingo on that time of day concept!
Bingo again!
From my experience, the 11:00AM (ct) pattern was in play for quite a long time. Eventually it sort of migrated away (at times it was front run), then for a short while it migrated to 12:00pm (ct). A day like today, as an example, looked and felt like the pulled bids into the regular TOD reversal spot. The real psychological issue that can trip me up and get me to unload early is just how compressed the vol. gets at the lows of the day. Basically, it's just a binary move into a very specific price support (frequently you find it on the daily chart with an important closing price from several days prior), but most traders want that "spring" action to sell into and during this Trump era I've noticed that the price structure has changed quite significantly (even from say 2015-16) which still had significant periods of time that resembled price structure from 10-15-20 years ago.
Well, as I mentioned, we'll see how it pans out tomorrow. He starts yapping at 10AM ET, and the ol' 10:30 reversal time is going to be complete fubar the longer he yaps. Bias it down for the first few minutes though.
I do completely agree with you. I see it with my trades all the time and how many of them would benefit from a scale-in versus a stop-out. My trades are also not nearly as well thought out as you.
The benefits of this really come into play with the micro contracts. Assume you used to trade the ES and use a 2 point stop, so you have $100 on the line. Now with the mES, you can scale into your position. You can still use a $100 stop, but if you structure it so that you enter 2 micro contracts at one level, and then 2 points away add around 2 when it goes against you, instead of taking the stop-out, you will actually much more often end up with a profit.
Also, what I see over and over again, is that once price takes off in a direction you expected, it often means that you're not getting a good price. Say you wanted in at 2900, but all you can get now is 2902. Well, price can very well test 2900 again, or even dip down to 2899, a whole 3 points away, and this still wouldn't be considered a broke level, just a poke. So if you know that you will start with 2 micro contracts at 2902 and not sweat it it goes against you, because you will buy more at an even better price, psychologically, this will be very beneficial.
The key really is having a stop. So spreading out your entries and having a stop is much easier to accomplish than trying to precision enter the trade. From all the trades posted, I can say 90% of entries would benefit from a scale-in at a better price if your position size allows for multiple contracts, which is easy to do with the micros.
So HOW do you know that this time this market "inertia" will pull it back and continue its original trend and not reverse the trend to go in the other direction?
"Of course, my illustrations are hindsight. For the most part."
If your illustration is all based on hindsight then it's not worth much. Everybody is a genius in hindsight. Past performance is not indicative of future performances. Just because the market pulled back several times before continuing on a huge trend doesn't mean the next time that it will pull back the next time. And the past few "average down" that you did could've landed you in a margin call way before the market finally reverses and continues its original trend. What then?
Key to successful trading is not being right. It's having enough money to cash in on being right. Once you've made enough losses, you will realize this.
Yes but the market changes. It's dynamic. It could exhibit one type of market structure for many years and all of sudden it would change for one year and you won't know it until after the fact. That's the problem.
Here is some averaging down trades in MES and ES this morning. The big drop afterwards I would have shorted too and made a bundle but I left the Motorhome to go to the house and eat breakfast. Now mind you JSOP these were taken and placed there by the platform as I took them.. Of course, JSOP the charts are hindsight BUT the darn trades are not drawn in by hand in hindsite. The platform placed them as I took them.
Now lets explore a scenario. Say I averaged in per the chart entries but DID not exit per the chart exits. Then comes the big drop (I am assuming Powell is yapping). So very suddenly I am caught in a losing position. What do I do? I'm caught in the big drop shortly after I made my profits now what?
Well..I know exactly where I would have exited with my loss, doubled up, went short, and not only would I have made my loss back but a bundle more and way more than I made in my successful averaging down entries and exits on the chart.
I did not even see that drop till I got back to the motorhome.
Yes the chart is hindsite. I can't take a snapshot of a chart that doesn't yet exist, now can I? But the trades are placed there by the platform as I took them not drawn in by me.
These trades $682.50. Over about a 25 minute time span for ALL of them in both MES and ES. So...don't tell me averaging down doesn't work. It will IF you know what your are doing. Is that my wife's car cranking and heading for Dillards?
The biggest thing is that traders have no contingencies plans of what do if the market does this instead of that after their entry. Instead they are just sitting there on a log HOPING they gonna make some money from their entries and viola their SL is hit knocking them off the log. They get up trembling and are afraid to do what they should do which is GO IN THE OTHER DIRECTION if that side is winning. If not sure which side is winning, then wait for clarity.
Just look at the darn chart. From the open who was winning? It opened gap down. Looks like the bears got the open. But as you say the market is dynamic. What happens? bulls take command 6 bars later but bears push back hard trying to squash bulls. Bears attempt fail on that big bar and bulls win the bar. The bears are pissed..well maybe..who knows..They push back on the 8th and 9th bar pushing price down but bulls win in the end pushing back even harder and close 9th bar bullish. Everybody positioning for Mr P yapping. By 10th bar bulls have won. The suspense is great. 13th and 14th bar are good for scalping. Everyone is holding their breath......why? Mr P is speaking, or has spoken. I don't listen to him. The market digest what he says. I am out. The reaction takes place. I'm eating breakfast.
Wife has left the house!
Now lets explore a scenario. Say I averaged in per the chart entries but DID not exit per the chart exits. Then comes the big drop (I am assuming Powell is yapping). So very suddenly I am caught in a losing position. What do I do? I'm caught in the big drop shortly after I made my profits now what?
Well..I know exactly where I would have exited with my loss, doubled up, went short, and not only would I have made my loss back but a bundle more and way more than I made in my successful averaging down entries and exits on the chart.
I did not even see that drop till I got back to the motorhome.
Yes the chart is hindsite. I can't take a snapshot of a chart that doesn't yet exist, now can I? But the trades are placed there by the platform as I took them not drawn in by me.
These trades $682.50. Over about a 25 minute time span for ALL of them in both MES and ES. So...don't tell me averaging down doesn't work. It will IF you know what your are doing. Is that my wife's car cranking and heading for Dillards?
The biggest thing is that traders have no contingencies plans of what do if the market does this instead of that after their entry. Instead they are just sitting there on a log HOPING they gonna make some money from their entries and viola their SL is hit knocking them off the log. They get up trembling and are afraid to do what they should do which is GO IN THE OTHER DIRECTION if that side is winning. If not sure which side is winning, then wait for clarity.
Just look at the darn chart. From the open who was winning? It opened gap down. Looks like the bears got the open. But as you say the market is dynamic. What happens? bulls take command 6 bars later but bears push back hard trying to squash bulls. Bears attempt fail on that big bar and bulls win the bar. The bears are pissed..well maybe..who knows..They push back on the 8th and 9th bar pushing price down but bulls win in the end pushing back even harder and close 9th bar bullish. Everybody positioning for Mr P yapping. By 10th bar bulls have won. The suspense is great. 13th and 14th bar are good for scalping. Everyone is holding their breath......why? Mr P is speaking, or has spoken. I don't listen to him. The market digest what he says. I am out. The reaction takes place. I'm eating breakfast.
Wife has left the house!
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