What a stupid study

[wxytrader]

You are mistaken the part where your strategy works and where it doesn't. It is not because you are averaging down or catch the falling knife, where you make your money, it is in the part of the recovery you make it. And there are two if. One, will it recover so you will make the money and second in what time frame. It is not because history has shown that the SPY recover sooner then later, you in your lifetime will not have the period of decades of no recovery. I would not bet on 'hope' of recovery, even though it has shown in the last 25 years it does. But it took also a decade from 2000 to 2013 to see new highs after some dips in those years. All depends on your cycle of life. You can do great and you can turn 70, just before a period of no recovery for decades. That is why most would prefer a defined system with clear risk control and a skew in risk to reward ratio's.

You're all assuming this is a mechanical system. I just put the worst case scenario to show that it works in the worst case scenario. Obviously I'm not going to be buying at the top and averaging down from there. There is some skill still involved in TA. Typically I'll start buying when everyone else is crying.

We kind of steered off topic. All I'm saying is that using stops is essentially gambling because you are hoping you are right no different than picking a number in roulette. With averaging down I don't care if I'm right ..if I'm wrong I can accumulate more shares and increase future profits.

Ask yourself if you would put your house up for sale just because it drops $1500 in price? What if you could actually place stops on your house where if price hits that level your house would be sold off? How many of you would use stops then? Stocks are no different.

 

[danielc1]

You're all assuming this is a mechanical system. I just put the worst case scenario to show that it works in the worst case scenario. Obviously I'm not going to be buying at the top and averaging down from there. There is some skill still involved in TA. Typically I'll start buying when everyone else is crying.

I think I understand what you are doing now. So, if I understand correctly, you time your moment when to average down? That is a great.
But we do not see a lot of those moments. For example, what do you do when the market is moving up? Do you have then missed opportunities because you are waiting with capital for the moment you can start averaging down? Did you calculate missing returns of 'waiting' for corrections or even bearmarkets? Also do you use an allocation calculation of your capital to deploy on several levels? For example 25% from top, put % of capital in the markets, 50% from top, put % of capital in the market. How do you know if you are fully invested at the bottom? What if you find out if you are fully invested and the underlying keeps getting lower? Do you borrow money then to average down?

 

[ironchef]

If he is a trader,as in swing,he doesnt make money if he is dead right.

He claims to use volatility to his advantage by scaling in when dead wrong.

Upside vol does nothing for him..

Look at his example and ignore the cherry picking..

Hes 28 delta long on his initial purchase???He basically doubles up plus some on each 12.5% correction from his initial purchase price.

Its the same way he views selling puts. Hes very consistent,but doesnt make money when he is right.

He acts like Elliot Wave is his edge as far as timing,but trades a 28 delta and doubles down to catch up??

makes ZERO sense from a trading perspective.

Hes an Investor,which is fine,but he is absolutely clueless when it comes to trading. If I made his claims,I would have the simulations and or P/L to back it up

This is why I like to read your posts. If I were OP, I take it to heart and do my backtest to prove you right or wrong.

The reality is you can make money or lose money using every tricks in the book. The devil is in the details.

The thesis I stated in my post, I realized them early in my journey and actually is a part of my investment model. Easy to backtest.

 

[ironchef]

The question should then be does the OP strategy outperform the index over time?

I doubt it for the following reasons.

The portfolio has to have a fair amout of cash available to be able to average down. That cash is an underperforming asset while market is going up or moving sideways.

At some point you take profit and OP hasn't mention an exit strategy to take profit.
When asked a while back the OP stated that at the time he had no position. I have to assume he would then be in cash.

In the case where you open a trade and it moves in your direction you now only have a small position and don't add to it.
In the case where you open a position and it drops you add and keep adding as it drops. You lower your cost per share but you don't know how long before you get back to breakeven. You capital is not making you any money.
Without looking at the whole portfolio over a period of time it's difficult to really assess what kind of returns are posible.
My guess is that a dollar cost averaging strategy will outperform the averaging down strategy over time.

Excellent points. I can't argue with that. I need to analyze to see.

 

[ironchef]

Most likely he bought
China index, Kenya index ....

It went down. He bought it.
It went further down. He bought even more.
It went further down. He bought even more.
It went further down. He bought even more.
It went further down. He bought even more.
It went further down. He bought even more.
It went further down. He bought even more ....

WITH NO STOP



Of course now we know there are some indices that go up and up and up.

Sir, what you are saying is your chance of a fatal accident driving your Lambo is 1 out of 1 million, you better don't drive.

 

[ironchef]

I think I understand what you are doing now. So, if I understand correctly, you time your moment when to average down? That is a great.
But we do not see a lot of those moments. For example, what do you do when the market is moving up? Do you have then missed opportunities because you are waiting with capital for the moment you can start averaging down? Did you calculate missing returns of 'waiting' for corrections or even bearmarkets? Also do you use an allocation calculation of your capital to deploy on several levels? For example 25% from top, put % of capital in the markets, 50% from top, put % of capital in the market. How do you know if you are fully invested at the bottom? What if you find out if you are fully invested and the underlying keeps getting lower? Do you borrow money then to average down?

I like your thinking.

This is not my thread, me too, I like to hear OP's reasoning on this.

 

[smallfil]

The question should then be does the OP strategy outperform the index over time?

I doubt it for the following reasons.

The portfolio has to have a fair amout of cash available to be able to average down. That cash is an underperforming asset while market is going up or moving sideways.

At some point you take profit and OP hasn't mention an exit strategy to take profit.
When asked a while back the OP stated that at the time he had no position. I have to assume he would then be in cash.

In the case where you open a trade and it moves in your direction you now only have a small position and don't add to it.
In the case where you open a position and it drops you add and keep adding as it drops. You lower your cost per share but you don't know how long before you get back to breakeven. You capital is not making you any money.
Without looking at the whole portfolio over a period of time it's difficult to really assess what kind of returns are posible.
My guess is that a dollar cost averaging strategy will outperform the averaging down strategy over time.

Averaging down blindly, you are adding to a losing position which is guaranteed to increase those losses you have already. Do not see how that is a viable strategy at all for the original poster. Nobody knows where the bottom is on a stock on a downtrend. Enron went from $100 all the way to $0.50. There was an Enron employee who kept buying Enron shares as it tanked, averaging down. He lost everything. Ken Lay and Jeff Skilling sold their shares near the top but, kept telling people Enron is an awesome stock and to keep buying while, they were dumping their own shares.

 

[wxytrader]

I think I understand what you are doing now. So, if I understand correctly, you time your moment when to average down? That is a great.
But we do not see a lot of those moments. For example, what do you do when the market is moving up? Do you have then missed opportunities because you are waiting with capital for the moment you can start averaging down? Did you calculate missing returns of 'waiting' for corrections or even bearmarkets? Also do you use an allocation calculation of your capital to deploy on several levels? For example 25% from top, put % of capital in the markets, 50% from top, put % of capital in the market. How do you know if you are fully invested at the bottom? What if you find out if you are fully invested and the underlying keeps getting lower? Do you borrow money then to average down?

You guys, this is hard for me to explain because you all don't understand the intricitities of EW. I have had to dumb it down to basic C&H. I don't see the market in trends, I see it in motive waves, and corrective waves. Every ABC/WXY correction has fib levels which are used in picking entry points. It really doesn't matter if in an uptrend or a downtrend.

Here is a great resource: https://elliottwave-forecast.com/elliott-wave-theory/
Once you grasp EW you will realize how support and resistance levels don't exist, only fib levels. You will understand why some H&S work and others don't. You will understand triangles and cyphers. You will realize what is really happening with "order blocks" which are just an ABC or WXY, not price coming back arbitrarily to a liquidity zone. They come up with observational rules like such as once mitigated the block is done lol. It's akin to the earth sits on a turtles back.

Here is an example:

P.S this is also an example of the determinism of the market. The 3rd wave has aligned with the election year which facilitates the third wave because the market/economy gets propped up during election years. Technically the 3rd wave is a self fulfilling prophecy...this time it happened to be forecasting an event (the election), other times it will forecast earnings or news that will facilitate it completing its cycle.

 

[Rams Fan]

I just put the worst case scenario to show that it works in the worst case scenario.

 

[SunTrader]

Here is $SPX daily chart from back in 2022. From Jan 2nd high to Oct 13 low it lost -27.54%, try trading it with no stops without "chitting the bed":-