Tell me why averaging down is a bad idea .

[volpri]

Tell me why averaging down is a bad idea .

-When the trend is REALLY going down and is not reversing until a very very very long time later or never reversing. Averaging down is just throwing good money after bad and you end up with losses so huge that you can never make back.

This is why I never roll options.

THERE is ALWAYS a point of just exiting an averaged down position..take the loss and look to get it back but it does take sone psychological stability to double up and reverse. I cannot be focusing on the money but must focus on the process. If a trader cannot do this then of course it is better to NEVER average down.

I certainly do not advocate averaging down in just any environment or context. But there are ways to exploit PA by doing it if the context is right. And getting out quickly if the premise for doing proves out to be wrong.

It is all about strategies, tactic, process and execution in that correct context that renders an edge and gives a good probability of success. By good I mean 60% or more.

This said, generally, every day, I see multiple opportunities to deploy the tactic. Not that I take everyone of them.

 

[themickey]

Time to wake up! might be buying time fer you?

Yup, 0647 am, market opens here in one and a quarter hours time.
Prolly won't trade today unless algo spots something spectacular which I doubt.
Very reluctant atm to buy, I've been selling out last couple weeks, going to cash.

 

[JSOP]

WHEN.

Key key word there. I don’t average down just to be averaging down or to try and salvage a loss. There has to be a logical reason for doing it. Things such a context ..larger..and more immediate ...need to support the action of averaging down.

There are times even in a trend that I will do it. In what is called Small Pullback (bear or Bull Trends) Trends. These are relentless trends that just grind up in a bullish trend most of the day or grind down most of the day in bear trends. Nearly every PB is an opportunity to average in. Alot times though it isn’t much of averaging down because not much of a loss to average into but is really more like scaling in but some trades will be adding to a losing position in SPB TRENDS. Here is an example. Adding over every PB is a good strategy because this is a relentless trend that for the most part is staying above the EMA. ON THE BIGGER PB’s I will be adding to losing positions because as the PB is happening I am adding and adding. On the smaller PB’s I am scaling in and not really adding to much of a losing position because the swing lows are successively higher. But in either case shallow or deeper PB’s in the PB itself I am adding to a losing position ( which is the first entry in the PB) within the PB. Losing position in relationship to the first PB entry itself. Scaling in though in relationship to the entire trend. This isn’t the best chart for showing the concept as it occurs intraday but it is good enough to describe the process. I don’t know what time frame the chart is.

View attachment 207576

LOGICAL REASON. The market is NOT logical, never has and never will be. It just does whatever it wants to do. You might think it's logical to average down because eventually the market will reverse but the market might never reverse or does not reverse for a very very very very long time. What then? What happens to the positions that you averaged down? Those "small pull back" that you have done? What if the market never comes back up(down ) after those "small pull back"'s? All those terms like "pull backs" are only from hindsight, after the fact. It's only when the market reversed AFTER those "pull backs" that you can say they are just "pull backs" and qualify them further by saying they are "small" but if the market never reversed afterward then these would not be "pull backs"; these would be called "reversal points" but you won't know that until you've already spent the money to "average down" and then you are stuck.

 

[Overnight]

Yep. I was tempted to "average down" into my latest long, placed at yesterday's ETH open, but had to wait after I saw the action when I woke up this morning. I am glad I did, because today was a shitstorm of stupid at the Hole. Tomorrow will be equally as tense and stupid. Just gotta' ride it out and not try anything new and crazy, like averaging into a down market, which can turn on a dime. Sit on hands-type deal.

 

[JSOP]

THERE is ALWAYS a point of just exiting an averaged down position..take the loss and look to get it back but it does take sone psychological stability to double up and reverse. I cannot be focusing on the money but must focus on the process. If a trader cannot do this then of course it is better to NEVER average down.

I certainly do not advocate averaging down in just any environment or context. But there are ways to exploit PA by doing it if the context is right. And getting out quickly if the premise for doing proves out to be wrong.

It is all about strategies, tactic, process and execution in that correct context that renders an edge and gives a good probability of success. By good I mean 60% or more.

This said, generally, every day, I see multiple opportunities to deploy the tactic. Not that I take everyone of them.

Why add to your potential pain by taking on more losing positions? If you were going to stop-loss, why not just stop-loss right away and then follow the trend in the other direction? Or just simply sit out and watch the trend a bit and then take a new trade. Will be far better in terms of at least risk and margin management. If you see the trend has pulled back and is continuing its previous trend, then you would be able to take the new position at a lot favourable price without suffering the additional loss albeit on paper from the previous position. If the trade has indeed reversed, then you would've been spared of all of the pains from the previous losing position and additional pains from potential averaged-down(up) positions.

 

[freemarketsvictory]

for stocks, you can average down to zero, there is a reasona stock is down 95% people who average down are known as bottom fishers. averaging down for individual stocks is the first rule they they say NEVER average down in individual stocks. in rare occasions averaging down in stocks may get 'lucky' but 98% of the time averaging down in individual stocks is no no, and trader violation...and sin in trading.

people avarage down an think they are buying somethign for a 90% discount. when they are in fact bag holder or catching a falling knife and buying from people who want out at any price while it's still listed and still trading. as it mostly be illiquid and worth nothing in the future.

 

[volpri]

LOGICAL REASON. The market is NOT logical, never has and never will be. It just does whatever it wants to do. You might think it's logical to average down because eventually the market will reverse but the market might never reverse or does not reverse for a very very very very long time. What then? What happens to the positions that you averaged down? Those "small pull back" that you have done? What if the market never comes back up(down ) after those "small pull back"'s? All those terms like "pull backs" are only from hindsight, after the fact. It's only when the market reversed AFTER those "pull backs" that you can say they are just "pull backs" and qualify them further by saying they are "small" but if the market never reversed afterward then these would not be "pull backs"; these would be called "reversal points" but you won't know that until you've already spent the money to "average down" and then you are stuck.

So...don’t trade. You can never know..right? Get a job at a grocery store bagging groceries. But you never know you may not get any tips? Or could stumble toting the groceries out to a car and have a multiple compound fracture of your leg and end THE bag boy career.

The market is more logical than you think and it has inertia. It doesn’t do whatever it wants. It is not a living being with a will of it’s own. It is a conglomeration of buyers and sellers pushing to get the upper hand. On every bar. I repeat on every bar they are pushing. If one knows this there are ways to detect who is winning. And winners generally win for at least abit. It is all about odds. There are moments of extreme clarity in price action. To say we are at the mercy of a vengeful broad who is fickle, with that broad being the market, is a great misconception. There is a rhyme and reason as to what happens in the markets.

Overnight likes to blame Mr T’s tweets LOL. But yet he is willing to hold 1 lot for A 500 point drop. What the hell does that tell you?

No institution would play the markets if they could not move them. And when they move them it will show up in the charts. Have you ever considered WHY Small Pullback Trends even exist! Usually about once a week. Sometimes more? Wanna take a stab at why?

The market can go up. It can and will go down. It can go sideways. As a matter of a fact it has always done these three things. And if it is going up a trader should be able to tell when that trend is weakening. Same for downtrends. Averaging down is useful because I may not get the exact perfect entry but I can see where the pressures are. And I take a bet on that. If I am wrong I will GET THE HELL OUT. I entered knowing it is based on probabilities and if the unexpected, or lower probability event happens, I know what I will do. I have contingencies in place. Is a counter trend move likely gonna be a PB or a reversal? Context has alot to do with it in terms of probabilities.

Of course, my illustrations are hindsight. For the most part. Can I draw channels...ranges..trendlines..triangles..flags...on non-existent charts to illustrate a point? Or to illustrate a probability? Maybe I should try. That is, just get a blank page and draw every line I can think of to illustrate a point or two. Ridiculous right? THERE IS NOTHING WRONG WITH ILLUSTRATING POINTS AND EXAMPLES AFTER THEY HAVE HAPPENED IN A WAY PEOPLE CAN SEE AND UNDERSTAND THE CONCEPTS. IT IS HOW WE LEARN.

The airplane could fall. It could take off. It could crash. It could turn left or right. It could stall. It could nose dive straight into the ground. So...I just gonna get in it, crank her up, and see what she does. Little ridiculous, don’t you think. When I went to flight school I learned, first, in ground school about the theory and concepts of flight and why a chunk of metal can be constructed and used in such away to take advantage of pressures and forces created by airflow.speed..gravity..thrust...etc to actually get off the ground and sail through the air.

Then I saw it demonstrated by my flight instructor and I was briefed. Then it came my turn and I actually took off and flew the damned thing. Did some maneuvers....etc. There is a rhyme and reason to flying that requires that skills be learned (including contingencies) and checklist are used before every takeoff. All this to be successful. Same thing in trading.
Otherwise, we are all just a bunch of jackasses on ET spinning our wheels in the mud trying our damndest to learn something that can NEVER be learned and we are a bunch of fools for believing we can because it is all random and can never be known with sufficient skill to become successful. We would be absolute idiots with Barron being the only smart one because he has figured out a way to get us fools yapping at one another while he rolls in the $$$.

What do you think? If you had to take a position would you go long or short next? Or sit on your ass wringing your hands breaking out in a cold sweat?

Sorry for being so blunt but I am getting tired of people talking about hindsight for this or that. All learning starts with an analysis of hindsight and applying that to the future in similar circumstances. Nothing is ever perfect or 100% except that one’s wife is gonna spend all the money she can at Dillards. You can bet on that!

So what do you say? Long or short?

 

[volpri]

Why add to your potential pain by taking on more losing positions? If you were going to stop-loss, why not just stop-loss right away and then follow the trend in the other direction? Or just simply sit out and watch the trend a bit and then take a new trade. Will be far better in terms of at least risk and margin management. If you see the trend has pulled back and is continuing its previous trend, then you would be able to take the new position at a lot favourable price without suffering the additional loss albeit on paper from the previous position. If the trade has indeed reversed, then you would've been spared of all of the pains from the previous losing position and additional pains from potential averaged-down(up) positions.

Because it will not work in the real world of trading and that is what all those blasted gurus have hoodwinked us with. More often than not I am gonna be right averaging down and have a successful trade..make some jack...and have a high win rate. While the majority are taking loss after loss with their SL getting hit over and over depleting their account and being whipped around with their heads spinning around and around like a broken jack in the box.

 

[themickey]

...........

So much energy expelled to win a point....

 

[volpri]

Yep. I was tempted to "average down" into my latest long, placed at yesterday's ETH open, but had to wait after I saw the action when I woke up this morning. I am glad I did, because today was a shitstorm of stupid at the Hole. Tomorrow will be equally as tense and stupid. Just gotta' ride it out and not try anything new and crazy, like averaging into a down market, which can turn on a dime. Sit on hands-type deal.

While you sit I’ll be averaging down and making some money. I even have averaging down techniques in downtrends and uptrends but I have to be jack on the spot..nimble and QUICK and KNOW when to jump over the candlestick.