Tell me why averaging down is a bad idea .

[trdes]

What mathematical edge? You don't need one! You're bloody winning mate lol!!!
When you average up your winning! YOU'RE BLOODY WINNING!!! And you're STILL winning AFTER the average!
That means you and the market are in sync.
Simple example:
I get long the ES at 3000 it trades higher to 3010. I add another. I now have an average of 2@3005. I'm winning, still!

I get long at 3000, it trades lower in this case to 2990. I add another. I now have an average of 2@2995. I'm losing, still!

If you have to rely on averaging down to win (adding to losing positions), what sort of edge do you have?

If you reverse engineer a typical blow up then you will be averaging up on a directional move.
In other words, you leverage a market that is paying you.
It's called trading market 'feedback'.

Okay, if you're telling me you're just an extremely mentally strong trader. Than I understand.

If not I still don't understand because unless you're just randomly buying a contract, than you would be using some type of metric to initially buy the contract... right? some type of edge?


EDIT: To be clear I also never said "rely on". I am not talking about randomly averaging down. For further example if you know this is a good place to buy your initial contract and the market dips lower, but no other metric has changed and you add one. That is still averaging down, but I am confused how that makes it bad.

If you really have an edge in the markets you're not panicked or upset if price moves against you, you actually want that to happen so you can increase your position size. Now if you were to tell me "My edge is so strong I am precise OR if it goes against me even a little I know I am wrong", if that was the case I still don't understand because if you're THAT accurate wouldn't you just go in a lot heavier. Because if that were true why wouldn't you?

 

[kellys]

Okay, if you're telling me you're just an extremely mentally strong trader. Than I understand.

I mean do you just have a dart board up and launch a dart and if it hits buy, than you press buy? wait for +10 and than add one? If not I still don't understand because you would be using some type of metric to initially buy the contract... right? some type of edge?

Say you had NO edge, zero clue whatsoever.
You have 50/50. A dart board even!

Quite simply, the difference between averaging down and averaging up, is that in the latter, you are winning. You are winning prior to the average, and after averaging.
Is that not important?

 

[trdes]

[

Say you had NO edge, zero clue whatsoever.
You have 50/50. A dart board even!

Quite simply, the difference between averaging down and averaging up, is that in the later, you are winning. You are winning prior to the average, and after averaging.
Is that not important?

Sorry for so many edits in last post. I should of finished it out but I started hit enter than wanted to add a lot.

Yes, that is a world of difference in that alone. If we say it's 50/50 and we agree there's no edge when initially buying or at any point. Than I wouldn't try to debate.

But that isn't the reality of trading (again unless you're extremely mentally strong where you can do that, even than you would still need some type of measurement to know when to enter or at least when to cut your losses right?)

That's all I am saying if you have a measurement for initial buy, adding or getting out of your position if it doesn't go up +10. If any of that is true than I don't see why you're assuming people can't have an edge when averaging down?

 

[trdes]

im not thinking of randomly averaging down im saying if you change sign direction (the chain breaks) you will be up money on the preceding three trades and any two consecutive signs cross your worst in the other direction so it will always not become a mess (if you lose power for a month and next look it will be better in pnl than you would have been). this means you can add nuclear options on top. other functions have better properties but this for example will always make you money on a process which doesnt have inifinte return time like a brownian motion. start here

I understand, but unless I am misreading or doing a poor job of interpreting what people are saying. It seems most are correlating all averaging down as random or an inherently bad thing to do. Seems I am doing a poor job of explaining that, that isn't always the case.

 

[TommyR]

sorry yes i wasnt taking offence i was joking. i think averaging down might be legit anyway in most of its forms

 

[kellys]

I understand, but unless I am misreading or doing a poor job of interpreting what people are saying. It seems most are correlating all averaging down as random or an inherently bad thing to do. Seems I am doing a poor job of explaining that, that isn't always the case.

Quite simply, the difference between averaging down and averaging up, is that in the latter, you are winning. You are winning prior to the average, and after averaging.
Is that not important?

 

[trdes]

Quite simply, the difference between averaging down and averaging up, is that in the latter, you are winning. You are winning prior to the average, and after averaging.
Is that not important?

Thanks for your time and replies, but you just repeated the same exact question without responding to anything I said. It's actually very odd or if you're trolling, well done you got me. Enjoy your weekend.

 

[kellys]

Thanks for your time and replies, but now I see you're either trolling, being intellectually lazy or you don't actually trade. I am really not trying to be harsh or insulting, but you literally repeated the same exact question, while making a conscious effort not to address anything I said. Enjoy your weekend.

I asked a question, you didn't /couldn't answer it.

Sometimes it is as simple as acceptance.

Enjoy your weekend also!

 

[trdes]

I asked a question, you didn't /couldn't answer it.

Sometimes it is as simple as acceptance.

Enjoy your weekend also!

Sorry but that is just factually incorrect. If you scroll up I did indeed answer your question and than did a follow up behind that.

 

[kellys]

Sorry but that is just factually incorrect. If you scroll up I did indeed answer your question and than did a follow up behind that.

So it is important!
What is your problem then?

You want me to do all the work for you?