Tell me why averaging down is a bad idea .
- Thread starter joker542
- Start date
Lets define the context:
Immediate context: Gap up open, the opening gap has held ABOVE the BO point. The climax bar is the largest bar in 77 bars, tight micro bear channel (yellow ..possible bull flag), price at the moment above both MA’s, climax bar is a BO of the last 10 bars, it is big bar closing near it’s high and it is a bull bar.
Larger context: Gap open above an aprox 67 bar range (yellow). Last leg in the range is a bull channel, the channel has consecutive bull bars, larger bull bars than bear bars in the channel, 15 bull bars..13 bear bars, price breaks above both MA’s and subsequent pb’s are not going below the MA’s.
Immediate context: Gap up open, the opening gap has held ABOVE the BO point. The climax bar is the largest bar in 77 bars, tight micro bear channel (yellow ..possible bull flag), price at the moment above both MA’s, climax bar is a BO of the last 10 bars, it is big bar closing near it’s high and it is a bull bar.
Larger context: Gap open above an aprox 67 bar range (yellow). Last leg in the range is a bull channel, the channel has consecutive bull bars, larger bull bars than bear bars in the channel, 15 bull bars..13 bear bars, price breaks above both MA’s and subsequent pb’s are not going below the MA’s.
Ok so how do I see to trade this. First the context is bullish all the way. Tight bull channel before the RTH’s open. Then gap up on the open. The gap does not close completely on the first retracement or pb after the open. This indicates buyers below and that the pb is a minor move down and that the larger trend will probably continue so I would be aware of shorting. 7 bars after the open we get a bull bar in the pb that has a high above the high of the previous bar. That makes it a High 1 (H1). A H1 is the first attempt to end the PB. Then we get a bear bar when is technically not a PB on the 5 min chart because it’s low didn’t get below the low of the previous bull bar. However, it is what is called an implied PB. If you dial down to a 3 min or 1 min chart you will that this bear bar is indeed a PB. For aggressive traders this H1 is an ok FIRST entry because of the larger context. And it is ok to average down on the next bear bar after this H1. PRICE IS STAYING ABOVE BOTH MA’s.
Continuing. So, after this implied pb then we get another bull bar that is a H2 or the second time in the larger PB that we get a bar with a high above the high of previous bar and it is a bull bar. This indicates buyers below. Now this also a good time to go long. It is a SECOND entry long in this pb right after the open. The larger context is right right too for this second entry. Again it is an H2 which is a second entry long. The next bar is a bear bar but it’s low holds above the lowest low of the larger PB so it is a good bar to average down on for this second entry. That is, I would enter long on the H2 and add more on the subsequent bear bar.
PRICE IS STAYING ABOVE BOTH MA’s.
So now we arrive at the big BO climax bar. Climax bars can either be exhaustion and price will go into a range. Or they can be a climatic reversal and price will reverse. Or the climax can be a measuring gap with a measured move up. So, it was at this point asked you guys long or short. There is a THIRD entry or H3 and it is when this climatic bar breaks above the high of the previous bar. This would be the third time to go long.
PRICE IS STAYING ABOVE BOTH MA’s.
So, the climatic bar was in actuality an H3 being the third time a bar made a higher high than the previous bar in the larger pb that started from the open.
Finally, we come to the close of the climatic bar. If I had not go long on the H1, H2, and H3 mentioned above I would definitely get long on the close of this bull bar. Why? Again larger context =bullish. Opening gap of the RTH’s does not close all the way. That is, price stays above the BO point. See chart above. So, this close of the climatic bar is the 4th time to get long.
PRICE IS STAYING ABOVE BOTH MA’s.
Next we get a Pb after the climatic bar. What am I doing. You can bet your bottom dollar I am making haste and adding to my position started at the 4th entry. That is I am averaging down. Why? Well 4 long opportunities. Larger context is bullish. Gap on the open that doesn’t close all the way. A cursory glance at the chart indicates bullish. Everything is bullish. I am adding. Averaging down.
PRICE IS STAYING ABOVE BOTH MA’s.
Now the count starts over after the pb made after the climax bar. So the first bar in this pb after the climax bar becomes a new H1. By this time I am counting on a second leg up. I am 80% sure this previous climax bar is gonna be a meaduring move up and not an exhaustion climax. Odds strongly favor at min another leg up. Hence I draw in the measured moves. At the small MM (red) and middle size MM (orange arrow) we see a small implied PB and that is where a little profit taking took place. Then we actually get a third leg up that almost takes price to the top of the larger MM.
So this is how I trade this type of PA. Maybe it is informative. Maybe not?
Continuing. So, after this implied pb then we get another bull bar that is a H2 or the second time in the larger PB that we get a bar with a high above the high of previous bar and it is a bull bar. This indicates buyers below. Now this also a good time to go long. It is a SECOND entry long in this pb right after the open. The larger context is right right too for this second entry. Again it is an H2 which is a second entry long. The next bar is a bear bar but it’s low holds above the lowest low of the larger PB so it is a good bar to average down on for this second entry. That is, I would enter long on the H2 and add more on the subsequent bear bar.
PRICE IS STAYING ABOVE BOTH MA’s.
So now we arrive at the big BO climax bar. Climax bars can either be exhaustion and price will go into a range. Or they can be a climatic reversal and price will reverse. Or the climax can be a measuring gap with a measured move up. So, it was at this point asked you guys long or short. There is a THIRD entry or H3 and it is when this climatic bar breaks above the high of the previous bar. This would be the third time to go long.
PRICE IS STAYING ABOVE BOTH MA’s.
So, the climatic bar was in actuality an H3 being the third time a bar made a higher high than the previous bar in the larger pb that started from the open.
Finally, we come to the close of the climatic bar. If I had not go long on the H1, H2, and H3 mentioned above I would definitely get long on the close of this bull bar. Why? Again larger context =bullish. Opening gap of the RTH’s does not close all the way. That is, price stays above the BO point. See chart above. So, this close of the climatic bar is the 4th time to get long.
PRICE IS STAYING ABOVE BOTH MA’s.
Next we get a Pb after the climatic bar. What am I doing. You can bet your bottom dollar I am making haste and adding to my position started at the 4th entry. That is I am averaging down. Why? Well 4 long opportunities. Larger context is bullish. Gap on the open that doesn’t close all the way. A cursory glance at the chart indicates bullish. Everything is bullish. I am adding. Averaging down.
PRICE IS STAYING ABOVE BOTH MA’s.
Now the count starts over after the pb made after the climax bar. So the first bar in this pb after the climax bar becomes a new H1. By this time I am counting on a second leg up. I am 80% sure this previous climax bar is gonna be a meaduring move up and not an exhaustion climax. Odds strongly favor at min another leg up. Hence I draw in the measured moves. At the small MM (red) and middle size MM (orange arrow) we see a small implied PB and that is where a little profit taking took place. Then we actually get a third leg up that almost takes price to the top of the larger MM.
So this is how I trade this type of PA. Maybe it is informative. Maybe not?
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I do ES, Ym, NQ, and their corresponding micros. But prefer ES and MES. I already explained this before concerning MES. Alot of traders starting out have small accounts. It is not really very viable for them to learn this stuff on ES..YM..and NQ. They may take too many hits and deplete their account. However, if they can learn to read and trade PA the way I do then perhaps, at least with the micros, they might can try their hand at it live without doing too much damage to their account and possibly even grow their account. However, I am not advising them to do this but if they choose to do so they first need to understand clearly, the concepts..practice alot on a SIM AND then perhaps..maybe.. considering going live with MES. I am not giving trading advice here. It is just my opinion and how I see PA and how I try to trade it. For a trader to just jump in without knowing and start trading ES they may well find serious damage done to their account. So, do I think it viable to average down in the micros? If you know what you are doing and have practiced it alot it may work for you. Then again it may not because of the psychology involved. I have tried to show several occasions of averaging down in the micros. Today I am racing down the interstate headed for Mexico. My son is driving. I traded MES. Made some. Lost some. Then made back what I lost and ended the day just over 200 dollars. Not much but pretty good for little tiny MES. Just calculate it....if it were ES.....why didn’t I trade ES today? Because I wanted to trade MES!
Disclaimer: Trading futures is very risky. You can lose all your capital plus owe some. So, beware. These post of mine (all of them) are only for informational purposes and entertainment. I am not telling any trader to trade this way. If they do it is TOTALLY AT their own risk!
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I suppose that is an answer.
By the way...disclaimer: You are not selling something, so there is no need for you to lay down your disclaimer about past performance and "informational or entertainment purposes". People are not going to hold you accountable if they attempt to average down/in and fail, because they can't legally do so. Seriously.
It still doesn’t hurt to just warn people. Know what I mean? They need to think about it.