Bye. Hope you don't try your averaging down idea if we get another Q4 2018.
Tell me why averaging down is a bad idea .
- Thread starter joker542
- Start date
Bye. Hope you don't try your averaging down idea if we get another Q4 2018.
There was a guy here years ago had a thread called "want to share". I suggest you read it. Hasn't been seen at ET in years but remember him as well versed in this subject. Myself, I made considerable money, in my little piker world, for quite awhile practicing cost averaging...until I didn't. 60%, about 140K loss, of account blown in less than six months during the crash originating March 2000. The trick is to recognize when the market has actually turned and not just pulled back. Seems obvious now but as a complete newbie I was too inexperienced to see that and had no other methods that I was experienced in to utilize.
One of his original posts:
Good questions, Here we go
I Dollar cost my equity at -15% for same number of share as I bought 1st time.
I then Dollar cost again at -30% for 2 times original amount then start praying (I just have limit buys at these levels when I put in original orders)
I will hold at these levels if It's a long term outlook but if It was a speculation that whent wrong I will sell out at a loss on good strength. Hasn't happened that often over past couple of years.
2000 was a different story I just liquidated and whent to cash when market started to correct. Saved MILLIONS!!! Had been buying puts too early that year.
Energy Trust are 15%+
Index and Closed End Funds and ETF's and Mutual funds are 35%
About 30% US equity
About 20% International Equity
I overwieght Sectors in US, Like now Tech, Oil and energy, Steel, Miners, Finacial, Drugs, Healthcare, Alternative plays
I sell Calls on my losers to recover losses but no more than 3 months out.
And piss away a good amount Buying puts but I remember how they saved my ass in 2000, I use My income producing funds and equity to do most of this.
I have Fideilty for my Mutual Funds and UBS for the rest
FID account gets no action, But UBS I pay a flat rate of 1.65% of acount balance (OUCH) but unlimited trading. And good help along the way.
Options Just Zero Cost Collars, Protecive Puts, and Covered calls
No real speculation but I should play around more with naked calls
Thks For The Q's and I hope this is a good list to look at and do your research from there.
DOLLAR COST AVERAGE MAN
One of his original posts:
Good questions, Here we go
I Dollar cost my equity at -15% for same number of share as I bought 1st time.
I then Dollar cost again at -30% for 2 times original amount then start praying (I just have limit buys at these levels when I put in original orders)
I will hold at these levels if It's a long term outlook but if It was a speculation that whent wrong I will sell out at a loss on good strength. Hasn't happened that often over past couple of years.
2000 was a different story I just liquidated and whent to cash when market started to correct. Saved MILLIONS!!! Had been buying puts too early that year.
Energy Trust are 15%+
Index and Closed End Funds and ETF's and Mutual funds are 35%
About 30% US equity
About 20% International Equity
I overwieght Sectors in US, Like now Tech, Oil and energy, Steel, Miners, Finacial, Drugs, Healthcare, Alternative plays
I sell Calls on my losers to recover losses but no more than 3 months out.
And piss away a good amount Buying puts but I remember how they saved my ass in 2000, I use My income producing funds and equity to do most of this.
I have Fideilty for my Mutual Funds and UBS for the rest
FID account gets no action, But UBS I pay a flat rate of 1.65% of acount balance (OUCH) but unlimited trading. And good help along the way.
Options Just Zero Cost Collars, Protecive Puts, and Covered calls
No real speculation but I should play around more with naked calls
Thks For The Q's and I hope this is a good list to look at and do your research from there.
DOLLAR COST AVERAGE MAN
%% Exactly;
regular investments in good ETFs/mutual funds over time can work well. That has worked well over more than 200 years/US But averaging down is an ego trip sure to trip anyone over time. Even worse, op said buy when oversold; most oversold trends get more oversold. Even worse ''oversold'' is a traders term+ costs more in comissions.
The below excerpt from a recent episode of "The Truth About Forex" podcast captures the dialog between volpri and those who are not so enthused about his approach --
Walter Peters -- "EP186: 3 Things You Wish You Knew Before Becoming a Trader"
https://podcasts.google.com/?feed=aHR0cHM6Ly90cnV0aGFib3V0ZnguY29tL2ZlZWQvcG9kY2FzdA==&episode=aHR0cHM6Ly90cnV0aGFib3V0ZnguY29tLz9wPTI1MTU=&hl=en
... Probably the last thing that I wish someone told me is that you really shouldn’t listen to other traders. I know as a person sitting here on this little podcast softbox, I’m someone telling you this is a no. But really, you really shouldn’t.
Here’s the thing. I can go into a forum right now on the internet, get an account, log in to a forum and I could post my trading strategy and I could tell people, I could just ask, “What do you think about this? Am I doing the right thing?”
You know what I am going to hear? I’m going to hear the entire rage [range]. I’m going to hear people that are going to say, “Wow! That looks amazing.” And I’m going to hear people say, “You’re an idiot and it’ll never work.”
You know what? They’re all right because the guy who said this is amazing, he can take that strategy and he can probably make money out of it. And the guy that says, “This is total crap. You’ll never make money trading this”, he will never make money trading it.
There’s a quote. I think Ed Sekoyta said something about this in the Market Wizards. It’s a famous quote and other people have said it, “Whether you believe you can or you can’t, you are right.” That is basically true in trading. It really is.
There are people that will tell you it’s impossible to make 1% a week trading. There are other people that are doing much better than that, every week trading. That’s it. Trying to set your expectations based on what somebody else tells you, it’s not good and that’s sad because we’re actually brainwashed from a young age to do that.
We’re brainwashed; parents tell their kids, you can’t do this and teachers tell the kids, no you can’t do that. Everything that we do from birth is basically setting us up in this psychological cage and we’re not allowed to get out of that.
When you ask other traders, “What do you think about this?”, just know that what they tell you, the answer they tell you, that only applies to them. That does not apply to you. You decide.
That’s another thing I want to say. Your limitations are yours and you own them and you determine them. Anybody else, you can have the best trading systems for you that you can trade for 30, 40 or 50 years and you can make tons of money trading that system. For other people, you can give it to them in a silver platter and they won’t make a dime.
That is an important concept because it is not the system. We think when we first start, it’s finding the system. It’s not the system. It is more about the risk. How that system interacts with you, like does it makes sense to you and then your mindset. What you believe about it.
If you are trading a system that you think is not going to make more than 3% a year, guess what? That’s your ceiling. 3% a year is your ceiling. So that is another thing I wish someone had told me that, I really shouldn’t be listening to other traders.
I should come up with my goals. What’s possible is up to me and it’s not what somebody has told because that happens all the time. I’ll show traders things and they’ll go, “That’s a crap”. Fine, that’s crap for you. You know what I mean?
And obviously that applies in life. That sort of thing but there’s tons of stories. You could read all these stories, motivational stories about the people who were told they couldn’t do it but they did do it and all that sort of thing.
for clarity, I've made a few minor changes to original transcript punctuation -- CharlesS
Walter Peters -- "EP186: 3 Things You Wish You Knew Before Becoming a Trader"
https://podcasts.google.com/?feed=aHR0cHM6Ly90cnV0aGFib3V0ZnguY29tL2ZlZWQvcG9kY2FzdA==&episode=aHR0cHM6Ly90cnV0aGFib3V0ZnguY29tLz9wPTI1MTU=&hl=en
... Probably the last thing that I wish someone told me is that you really shouldn’t listen to other traders. I know as a person sitting here on this little podcast softbox, I’m someone telling you this is a no. But really, you really shouldn’t.
Here’s the thing. I can go into a forum right now on the internet, get an account, log in to a forum and I could post my trading strategy and I could tell people, I could just ask, “What do you think about this? Am I doing the right thing?”
You know what I am going to hear? I’m going to hear the entire rage [range]. I’m going to hear people that are going to say, “Wow! That looks amazing.” And I’m going to hear people say, “You’re an idiot and it’ll never work.”
You know what? They’re all right because the guy who said this is amazing, he can take that strategy and he can probably make money out of it. And the guy that says, “This is total crap. You’ll never make money trading this”, he will never make money trading it.
There’s a quote. I think Ed Sekoyta said something about this in the Market Wizards. It’s a famous quote and other people have said it, “Whether you believe you can or you can’t, you are right.” That is basically true in trading. It really is.
There are people that will tell you it’s impossible to make 1% a week trading. There are other people that are doing much better than that, every week trading. That’s it. Trying to set your expectations based on what somebody else tells you, it’s not good and that’s sad because we’re actually brainwashed from a young age to do that.
We’re brainwashed; parents tell their kids, you can’t do this and teachers tell the kids, no you can’t do that. Everything that we do from birth is basically setting us up in this psychological cage and we’re not allowed to get out of that.
When you ask other traders, “What do you think about this?”, just know that what they tell you, the answer they tell you, that only applies to them. That does not apply to you. You decide.
That’s another thing I want to say. Your limitations are yours and you own them and you determine them. Anybody else, you can have the best trading systems for you that you can trade for 30, 40 or 50 years and you can make tons of money trading that system. For other people, you can give it to them in a silver platter and they won’t make a dime.
That is an important concept because it is not the system. We think when we first start, it’s finding the system. It’s not the system. It is more about the risk. How that system interacts with you, like does it makes sense to you and then your mindset. What you believe about it.
If you are trading a system that you think is not going to make more than 3% a year, guess what? That’s your ceiling. 3% a year is your ceiling. So that is another thing I wish someone had told me that, I really shouldn’t be listening to other traders.
I should come up with my goals. What’s possible is up to me and it’s not what somebody has told because that happens all the time. I’ll show traders things and they’ll go, “That’s a crap”. Fine, that’s crap for you. You know what I mean?
And obviously that applies in life. That sort of thing but there’s tons of stories. You could read all these stories, motivational stories about the people who were told they couldn’t do it but they did do it and all that sort of thing.
for clarity, I've made a few minor changes to original transcript punctuation -- CharlesS
Last edited:
What you say is true but also untrue.
When I was a teenager, I firmly believed there was no way I would be alive at 24 years of age.
Why?
Because I was a total moron, reckless, foolhardy, a menace, untrustworthy, troublemaker, thief.... etc
When I was in my 20's and working, a project engineer told me once I was a loser and that was my destiny.
I went into hotel work (having a break from engineering) and all I wanted to do was drink and smoke.
Back to trading.....
Often stocks I think will be hopeless outperform and stocks I think will perform do the opposite.
Life is full of surprises.
I will leave a comment on averaging down.
(1) In order for your average price to follow closely to the new level that you are adding to the position, you have to increase your position aggressively. Perhaps even tripling size with each addition!
(2) In many cases, it is probably better to just buy and sell at the same time so that you can take profit from any movement against your view instead of taking losses until it reverses.
You can obtain exposure in both directions by buying the security and selling a highly correlated security simultaneously. This is called a cross hedge.
-RM
(1) In order for your average price to follow closely to the new level that you are adding to the position, you have to increase your position aggressively. Perhaps even tripling size with each addition!
(2) In many cases, it is probably better to just buy and sell at the same time so that you can take profit from any movement against your view instead of taking losses until it reverses.
You can obtain exposure in both directions by buying the security and selling a highly correlated security simultaneously. This is called a cross hedge.
-RM
The reasoning behind averaging down is not necessarily a mathematical means to get neutral. The attraction to average down should be driven by an opportunity presenting itself to boost your exposure because of your belief that the price will go a certain direction.
Look, i get it! We've all been there. Making loads of money averaging down.
The reason why most average down is because it pays them, for a time that is.
And their logic is, "Hey, I'm making money, I'm right. Averaging down works."
My suggestion would be to forget your belief. Let's be honest, most people have no idea what the hell they are doing.
For those about to get upset, I'm talking statistics. Numbers don't lie!
Hell, half the time I have no idea what I'm doing. But by avoiding averaging down, I can be wrong and see the least amount of damage to my account possible.
Good traders manage risk. Period.
The craziest thing is...averaging down is bloody unnecessary!
You can make massive amounts of money by averaging up and managing risk.
Go and check this thread out:
https://www.elitetrader.com/et/threads/joining-the-cme-gang.334231/
As much as I like Hilmy, he was too busy playing offense and forgot the defense.
I mean how long do you want to be a great trader for, 2 days, a week, a year? We all want to be doing this until we don't.
But we certainly don't want to be forced out prematurely.
We are limited by our beliefs and the mechanisms we create to support those beliefs.
