averaging down intraday will kill you in a month dude. like this past monday.....yeah. not even worth a thought. again, to use this strategy, you need alot of capital and experience. I know many experienced traders who average down, even they can't avoid one of those disaster days.......but they got the capital and they don't have to rebuild from scratch.
It certainly can wipe you out, but not when you know how to spot the correct situations and also apply good risk mgmt. Its way too complicated to go step by step through the scenarios that I use for avg down/up as it's taken many years to perfect them. But, I assure you, there is order within chaos, you just need to understand how to spot them. I don't think you necessarily need a lot of capital (to learn them) but you do need lots of time and need to gain lots of experience from using that time wisely.
This makes a fine epitaph or "famous last words" This is often used be vendors or paper traders, in an effort to pump up their equity curve. Averaging down greatly increases your per-trade drawdowns. There is only one thing that REALLY matters longterm. That is called "Risk of Ruin." Averaging down is one of the fastest ways to bring this on. THAT is what people mean about a sudden large loss. There is no such thing as "spotting the correct situation." Averaging down is like jumping off a cliff. The ride is fine. It is only the sudden stop at the bottom that kills you.
a question to consider: is there a difference (other than semantic) between "averaging down" and "scaling in"? of course, one can scale into a position that is already in the black.... but what about the other way round?
Yes. Scaling in is taking on your full position as dictated by your R/R parameters in more than one trade. Averaging down in the context of this thread is taking on your full position as dictated by your R/R parameters in one trade, seeing your risk stop hit (mental, fixed, whatever) and altering your plan, breaking your own rules and taking on another position even though you haven't got a signal, and hoping that the market comes back so that you can have a lower break-even point, and sometimes repeating the above multiple times (as the OP seems to have done).
to put it in simple terms, scaling has to do with buying within a PREDETERMINED range. averaging down is buying where you should be getting stopped out.
scaling down is also controlled - specifically, leverage. But some people who think they are scaling are averaging down. and as quoted, averaging down is more like hoping to make your total position cheaper, when you probably should have gotten out instead. Cut losses short and let profits run. Averaging down is the opposite of this.
Been there done that, many times. And just when I think I've finally learned to stop being a dumb ass. I suddenly think I'm smart enough to get away with it THIS time. If it wasn't for this single mistake that I've repeated so many times, I'd probably be retired now.
I've been aggessively averaging down using SSO and QLD on dips since Oct. 10. I have enough in reserve to handle another substantial downturn. I'll let you know how it turns out.