averaging down and pyramiding; a problem which i can't figure out....

Discussion in 'Strategy Development' started by TGpop, Aug 9, 2010.

  1. TGpop


    i'll use an example to express my problem:

    a stock is in an uptrend, price is to me oversold, i buy , if i am wrong on entry i will average down, if i'm right i'll pyramid (with calculated risk)
    what happens if it starts heading your way,and you pyramid some...then heads down again? do you continue to average down? should i exit and wait for a better entry? should i use OCO orders?
    another thing is...if im wrong off the bat...and i average, but only a lil' bit and starts heading my way; do i pyramid ?

    i have skype so if anyone has done such methods sucessfully i would appreciated any insights :/
  2. What you described is not a problem if you understand the equity. If you do not know if you should buy more, sell more, average down or cover, then you probably shouldn't have taken a position to begin with. If its just a trade, then get the hell out when it does not move with you in the time frame expected.
  3. If I have good fundamental reason to average down then I do it, although I would not consider it being oversold or overbought a good reason. But everyone has different trading strategies, I sure there are plenty of people who average down for purely technical reason and are profitable and unprofitable. If this is consistently profitable for you, then do it.
  4. In trading stocks a person uses a plan to trade a Universe of stocks.

    And within this Universe is a hot list of stocks that are in the Present as stocks that are and will be providing a profits segment.

    You continually rotate through this hot list of stocks which, in turn, is continually updated from the Universe. the Univierse is kept current continually as well.

    With respect to any trade, it is taken on at the low of the cycle for a long trade or at the high of the cycle for a short trade.

    This thread discussion is about one thing and one thing only: how to conduct the busines of trading after entry.

    You hold through the three stages of the pattern.

    The posts so far show that the posters do NOT understand the market pattern for long or for short trend segments.

    If a stock is not making money, then another stock is substituted for it.

    One of tradegies of trading is that traders THINK stocks go up and down.

    It is difficult to penetrate such minds with alternative viewpoints.

    A remarkable example of this difficulty was a poster named DBPhoenix who though stocks went up and down. He illustrated his viewpoint with a supply and demand incorrect model.

    Below are two columns. One column shows the up down; on the left; the market's dominance is shown on the right.

    Up dominant

    Down Non Dom

    Up Dom

    Down Dom

    Up Non dom

    Down Dom.

    Up and down is how most people think the market goes.

    Above they see three pairs of up downs.

    What is actually happening is two trends: a long then a short.

    The long and the short have a pattern: Dom, Non Dom, Dom.

    Lets do what the OP does.

    He enters a trend after a down ends and he goes long.

    Next, he sees price falling and he adds more contracts to average down.

    He gets stopped out.

    This was a Watch Down, enter UP, stop out Down sequence that had a corresponding watch Dom, enter non Dom ,stop out Dom. The person does not, like DBPhoenix, know dom form non dom in price moves.

    Look at the three up downs and consider the pairings of doms and non doms. None of them are alike and this is all unknown to any poster in this thread.

    Here is the consequence:


    Step over the "How to Make Money in Stocks by W. J O'Neill. He has a chapter in that book on the 18 common mistakes made by traders. He explains the mistakes and to not make the mistakes. Do not average down is one of these common mistakes. How did ONeill know the OP was going to be making the mistakes he and the other posters continually make?

    He examined why these type traders are feardul, anxious and angry. So did Andrew Lo of MIT.

    All of these people have a perfect right to be anxious, fearful and angry: they do not know how the market operates. They think it goes up and down.

    In the above pairs, they begin with a long trend and end with a short trend. Each trend completes and there are two trends in three up/downs.

    Explaining this to a person who is incoherent and listening to other incoherent persons is a difficult task.

    the vast majorityof potential traders go through learning failure over and over and then they quit or their accounts go on empty.
  5. What you say above is difficult to understand and sounds like double speak to me. That thinking stocks go up and down is wrong but thinking that stocks go in cycles is right?

    I am sure you do fine with your method, but implying others are incorrect becuase they do not agree with your method is silly.

    Plenty of traders make money without over analysis and over trading of cycles and patterns. I am much more concerned about the present and future operating environments than timing some cycle fitted to past data.
  6. TGpop


    i would really appreciate if some of the sucessful professional swing traders out there could give me a sample of their past trades in which they averaged and pyramided, preferably over skype or email even, pm me if you're out there.

    i know a very very very good trader who did it and made him win most of his trades, i haven't seen him in 3 months though.

    ' that's because he blew up through averaging' no, shut up
  7. If you haven't already, check out C2 (I'd post a link, but I'm not sure if it's allowed).

    There's a popular system on it called ETFTimer that does exactly what you're talking about, and all its trades are posted.

    It trades nothing but QLD/QID, alternating between the two and scaling in and out along the way. Fairly smooth equity curve, 78% positive months and a 63% annualized return with no leverage (beyond the ETF's intrinsic 2:1). No intraday trades either, if memory serves.

    Note that the trades are aggregated, so it appears that the system's only done 24 trades in the 2.5 years its been running, but there's actually quite a bit more than that. Just click the down arrow to see the discrete trades and you'll see mucho scaling in/out.

    Anyway, the trades are there for all to see - Let the reverse engineering begin!