Averaging down..................

[robster970]

So I've been taught never to do this because it is for losers apparently.

My recent experiments with averaging down have been quite profitable as I'm typically doing it when fading a sell-off and am already in position that hasn't hit any notable profit target.

Am I on the road to rack and ruin? Should I stop doing this before I get caught with my pants down? Or is this just another of those rules (like absolute risk mgmt) that get's broken as you mature as a trader?

 

[shadowninja]

Averaging down... there are two types of traders that do this: complete newbies and traders who make a serious living from trading. One understands why it works and the best way to implement it and the other does it alongside their regular ritual of the 5 stages of death.

 

[TAjammy]

lolz. there's random averaging down and then there's calcluated averagin down (or grid trading i think?)

 

[counter_violent]

The most important point would be to reduce stakes.
Take your normal size stake and split it down.
Any additional stake entries NEED to work in favour of the initial stake...if they do not...then bin them off...as there will always be more opportunities that come along later.

 

[robster970]

I should qualify this as being done within the original stop for the first trade, not cascading down and down into oblivion. Seems effective when markets are mean reverting from what I can see rather than trending.

Still feels wrong, like doing your sisters best mate.

 

[foredog]

I should qualify this as being done within the original stop for the first trade, not cascading down and down into oblivion. Seems effective when markets are mean reverting from what I can see rather than trending.

Still feels wrong, like doing your sisters best mate.thumbsup:

Yes, buying on a small dip is fine but letting a punt turn into a longterm position just because you're long and wrong and doubled down is the road to ruin.

 

[robster970]

I can see why doubling down endlessly is just denial of wrongness of trade.

 

[foredog]

Shame so many didn't at the end of the Dotcom boom.....If it was good at £100 it's brilliant at 50p.....

5p Bid.....

 

[Shakone]

Are the other trades that average down actually good trades? And by that I mean, according to your system which you believe gives you an edge, and also keeping you within our money management plan. If so, then I think it is fine.

It does make me wonder why you'd still want to be in the initial trade though. When you average down, aren't you basically admitting that your first trade wasn't correct, so you need to put on a new one. If you think the first one is correct, why are you getting in again? Perhaps you're so confident that price will actually rebound and now you can get it really cheap.

 

[robster970]

I'll give you an example. I went in long 1 contract on E-Mini 1103.1 when it surged through this yesterday. It tested 1112.1 later in the day but the afternoon session kicked off with a big sell off and closed at 1106.4 at midnight last night. From that point on it has drifted around.

I'm still confident this is a pause in a longer term trend which is why I went long in the first place. There is nothing on the 1day charts telling me not to get out of this.

Today it tested 1100 twice - once at 1100.4 and when I saw it test this again at 1100.1 and saw the sell off weakening and buying taking over, I averaged down with another contract as I primarily saw it as an entry opportunity rather than a losing trade.

My stop is still at 1097.4 for both contracts so my risk for this trade is greater but I genuinely think e-mini won't break 1100 today and it's loitering around 1103 before it carries on upwards for a bit.

Bad trade? Poor use of averaging down?

 

[ES YM]

I average down...
No1 on this forum seems to from what i've seen? Its interesting that they say 'Losers' average down, but the majority on this forum haven't quite made it yet to profitable trading, yet strongly oppose the idea... Mmmmmm...

I do it in a very calculated and thought out, planned way so that it gives me an edge. I've always believed in trading, well, i was taught this but i too hold it strongly - That what is difficult to do, is usually the right thing to do.
Buying falling price is HARD. Everyone, wants confirmation, they wait until its risen, they want breakouts - They want a solid rising price with momentum... Thats why the majority lose... So averaging down, in a calculated way; Fades the majority.

I don't mean averaging down, through fear of accepting a loser... I don't really even consider a trade i average in to be a loser - Its not very important... Its my way of managing the trade and i've always kept a record of comparison of fully-scaling the first position Vs averaging and Averaging has turned what would be unprofitable, into profitable results.

Whats important in averaging down; I think... Is having a dynamic exit.
One that moves with price, using a fixed one reduces profitability by far.

So
1. Calculate it all BEFORE entering the position
2. Have a dynamic exit, not a fixed one
And i think you'll have a significant edge over the scared, waiting for confirmation market participants.

But take my advice with caution; I'm actually new to trading...

Averaging down should never be used as an excuse to stay in a trade though.

There is nothing wrong with accepting that you haven't got great entries, most people lose money by empathising on entries too much, expecting too much of their abilities... By accepting that i haven't the ability yet to have perfect entries, it allows me to be free to let my trades breathe to see if i was right about the context.

 

[Masquerade]

I've used averaging before.

 

[virtuos0]

Only benders call it averaging down, real men call it 'building a position' or 'scaling in'.

I build my position on pretty much every trade I make, unless it's a real humdinger where I feel justified in punting some size.

 

[virtuos0]

I average down...
No1 on this forum seems to from what i've seen? Its interesting that they say 'Losers' average down, but the majority on this forum haven't quite made it yet to profitable trading, yet strongly oppose the idea... Mmmmmm...

I do it in a very calculated and thought out, planned way so that it gives me an edge. I've always believed in trading, well, i was taught this but i too hold it strongly - That what is difficult to do, is usually the right thing to do.
Buying falling price is HARD. Everyone, wants confirmation, they wait until its risen, they want breakouts - They want a solid rising price with momentum... Thats why the majority lose... So averaging down, in a calculated way; Fades the majority.

I don't mean averaging down, through fear of accepting a loser... I don't really even consider a trade i average in to be a loser - Its not very important... Its my way of managing the trade and i've always kept a record of comparison of fully-scaling the first position Vs averaging and Averaging has turned what would be unprofitable, into profitable results.

Whats important in averaging down; I think... Is having a dynamic exit.
One that moves with price, using a fixed one reduces profitability by far.

So
1. Calculate it all BEFORE entering the position
2. Have a dynamic exit, not a fixed one
And i think you'll have a significant edge over the scared, waiting for confirmation market participants.

But take my advice with caution; I'm actually new to trading...

Averaging down should never be used as an excuse to stay in a trade though.

There is nothing wrong with accepting that you haven't got great entries, most people lose money by empathising on entries too much, expecting too much of their abilities... By accepting that i haven't the ability yet to have perfect entries, it allows me to be free to let my trades breathe to see if i was right about the context.

That's a good post for someone that's new to trading, you might actually make it!

 

[GladiatorX]

Only benders call it averaging down, real men call it 'building a position' or 'scaling in'.

I build my position on pretty much every trade I make, unless it's a real humdinger where I feel justified in punting some size.

Nothing wrong with being a bender is there lads!

I'm off to listen to some Gay bar, watch some football and drink some beer - Like a real man.

 

[virtuos0]

I'll give you an example. I went in long 1 contract on E-Mini 1103.1 when it surged through this yesterday. It tested 1112.1 later in the day but the afternoon session kicked off with a big sell off and closed at 1106.4 at midnight last night. From that point on it has drifted around.

I'm still confident this is a pause in a longer term trend which is why I went long in the first place. There is nothing on the 1day charts telling me not to get out of this.

Today it tested 1100 twice - once at 1100.4 and when I saw it test this again at 1100.1 and saw the sell off weakening and buying taking over, I averaged down with another contract as I primarily saw it as an entry opportunity rather than a losing trade.

My stop is still at 1097.4 for both contracts so my risk for this trade is greater but I genuinely think e-mini won't break 1100 today and it's loitering around 1103 before it carries on upwards for a bit.

Bad trade? Poor use of averaging down?

It's a good trade. You've taken a view and you're backing that view.

Let the market prove you wrong.

 

[virtuos0]

Nothing wrong with being a bender is there lads!

I'm off to listen to some Gay bar, watch some football and drink some beer - Like a real man.

I have nothing against benders. Sorry if I've offended any benders, seriously.

 

[oildaytrader]

Averaging down is a bad habit , and bad habits don't go away easily.Averaging down is buying against the odds or buying against a potential trend reversal.

The habitual averaging leads to increasing exposure on losing trades,and if used simultaneously on multiple instruments , can lead to disastrous consequences. .NEVER ADD TO A LOSING TRADE is a golden rule .Never break this rule!

o d t

 

[robster970]

It wasn't losing - it was hovering at about 2pts profit. I took advantage of a sell off that tested 1100 twice. Is this averaging down or is this actively managing a trade?

I'm not trying to be contrary here and BTW, this is rare for me.

I've only done it when I see a fade occuring after a sell off and only generally on confirmation of a level being tested more than once and that test supporting the underlying trend I believe the move is in on a higher timeframe.

Is that blindly averaging down? It is considered before I do it and not done on a whim. I'm merely questioning the assertion that it is a bad thing to do.

 

[virtuos0]

The only people that think it's a bad thing to do are ignorant of proper risk management.