It would be easy enough to devise a test about the profitability of adding to losers in a day trading session over a protracted period of time. I've done it before. And I don't add to losers because I know that sooner or later it is always catostrophic. I don't like throwing away a month or a quarter or a year in one day.
This guy Einar Aas lost everything adding to a loser in the NASDAQ Nordic Electricity Market. He went from having a personal worth over $100M to being broke and working as an analyst. In fact, the loss was so substantial it caused a default in the trading exchange. They allowed him to keep his house (by Norwegian law), but everything else he owns has been liquidated. He was one of Norway's wealthiest citizens. He was sure that the market would "normalize" but it never did... at least not before he blew out his own account and the trading exchange capital reserves. https://citywire.co.uk/wealth-manag...w-100m-hole-in-market-stability-fund/a1154735 https://www.globalcapital.com/article/b1jtttbq2vyk31/esma-releases-reaction-to-nasdaq-ccp-blow-up
The market can remain irrational longer than he remained solvent. But at 100mil WTF are you doing trading anyway at that point. Dude was a moron - at least in my eyes with that kind of net worth.
Brian Hunter lost $6.5 Billion and blew out Amaranth adding to losers in the Natural Gas Market. Jerome Kerviel lost $7.2 Billion at Soc Gen adding to losers in the Equity Index markets. And I have personally seen quite a few traders get blown out adding to losers.
I personally know a guy who lost $4.5M in a single day adding to losers. I saw his TT screen. Used to sit next to him. Interest Rate Futures. Kept adding and he was sure it was going to come back. He threw away about five years of work in one day.
Averaging into a position is done in all time frames in trading, from market making to long term holds. Often the the initial position is underwater for a period of time relative to the trade. Anyone who says that you can't profit from a strategy that averages into a position, whether it be for seconds or years, does not know what they are talking about or are a vendor trying to sell you their method.
It has nothing to do with my trading system - it is certainly not to my advantage to see clients get blown out.
In a sense I get it - as nobody goes out and deliberately looks for losers, the idea of adding to losers sounds perversely risky. However, if the TA demanded a new trade at a certain level, why not take it? The market does not know I already entered a trade at a worse price, it doesn't care. So if I enter long at 1.2345 and price falls to 1.1234 but the TA looks stronger at that level than my initial entry (strange but possible), why would I not add? I cannot devalue the TA simply because I took an earlier and weaker trade entry decision.
Come on you're a smart guy. Right? If you reverse and get smacked ... you reverse again. Now don't tell me you are ones of those who cry about commissions cutting into your profits. Because you try and try to scalp without co-location, exchange status etc. but that damn broker charges me sky high $2+ a mini.
Haven't been on FF in a few years. If I get a chance I'll take a look at the guy. But that says it all.