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

Discussion in 'Risk Management' 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. ==========
    Lots of money has been made like that:cool:

    If wrong, simply cut a loss...............................

    I also will use example. Mark Weinstein [nickname hi percent trader]won an option trading contest, [idea from floor traders in Chicago...]900%,gain/3 months but the markets were excellant & NO pyramids..................
  3. Just figure out your max loss % of total capital on any one trade and plan your scaling accordingly so your uncle point or adds are properly sized and placed.

    I've never been a fan of avg down because of personal preference. I will avg up once in a while if I've already surpassed my minimum goals for the day and get a violent move in my favor. Had some BIG wins that way also have watched Big gains come back to BE quickly so it's double edged sword but as long as you're BE after adding big size it is a good way to let big winners run.

    If you want your adds on avg up to give you a little more breathing room go in 3 units, go in 2 units, then last add 1 unit. Space your adds somewhat evenly and your Breakeven points will be a little less than the 50% retrace point.

    PS with adding up you can get a BIG position compared to your account size so just make sure your Sized correctly during big news releases so your big positions stop doesn't get blown out with huge slippage during a release.

    my 2 cents

    Check out this guys vids. It's a method in which he avg's up. Check it out to get another perspective .

    <iframe width="420" height="315" src="http://www.youtube.com/embed/a3p9DcQ6QkI" frameborder="0" allowfullscreen></iframe>
  4. Some guys average down just cause they don't know how to trade and pick a entry correctly and they are able to eeek out an edge and make some profits on a regular basis, till they hit that one trade that keeps going back on emm and they blow out a months profits or worse, pretty bad.

    The correct way to average down/up is to have a predefined range you are willing to buy/sell into and a set amount or risk/lots you can allot into this range, start out small and average up/down defined by your range and risk. These ranges can be pretty substantial in some cases, just start out small and work your way into learning what and where these ranges show up.
  5. I average up and down all day and all night long. A mathmetician will have a formula which states that it's the same difference as going all in, and I believe that is true. Time is more important to me than price, and because I trade by time rather than price I sometimes end up with pyramids, but if it's going straight one way with no pull backs it looks more like a tower.

    Either way, you have an average price, whether you put it on all at once or scaled in, so it's the same for everybody.

    averaging down gets a bad name because bad traders only do it as an afterthought when it doesn't go as planned. But if it is part of your original plan when you are flat and of sound mind an body it's just another technique.

    I doubt anyone will be good at it unless they first learn how to trade just one unit.
  6. If you want your adds on avg up to give you a little more breathing room go in 3 units, go in 2 units, then last add 1 unit. Space your adds somewhat evenly and your Breakeven points will be a little less than the 50% retrace point.

    That would be for average up. To average down it would be the opposite. 1 unit then 2 units then 3 units.

    If you averaged up then the trade reverses and you'd have to recalculate the reverse to break even. Seems it would take much more money to average up then reverse and average down on the same trade. Sounds like a formula to make a mess of things quickly.

    Do people do that? Pyramid up and then pyramid down?
  7. ocean5


    Hi TG,

    I`m trying to solve a similar problem.It is slightly different though,look...

    The system i trade shows up the Resistance/Support a little bit late,a few ticks away from it,so i want to find some kind of a formula that would help me to know,exactly how much should i scale in/up to get the price of the Resistance/Support level.How to calculate this quick,in the heat of the night,so to speak?

    If any pros could either point me out to the correct answer,i`d be very appreciate!
  8. I think it depends on your precision.

    If you are usually imprecise then starting small and adding to your position makes sense, if you are precise then all in from the start.

    Averaging up in wavering markets never made sense to me but the pros do it so go figure.
  9. it's all the same. They have a math fromula that shows scaling in or scaling out makes absoulutely no difference than going all in.

    I just know for me, after I started to figure out forex (and I'm still a beginner) averaging in improved things and scaling out was a disaster.

    But in the old days of scalping ES, averaging was just part of the daily grind.

    Pyramiding is a whole different thing and is very common for long term bean and grain traders.

    It takes forever to get it on and you lose a lot off your life expectancy, but when you finally get a pyramid on and the whole thing starts moving your way it is a beautiful thing.

    but I think opie is asking for a formula to know how to set up a pyramid to hit a certain pre determined price. Or what to do if you miss that price.

    otherwise, I just put them on 1 unit at a time, always the same size. If you don't do it that way you end up with the old Martingale problem of, "How much to start with?"
  10. but I started out all in all out, and I don't think without that foundation averaging or scaling will help very much. Either way, you still have to trade an average price. Adding to losers gives you a better average price, but still your average price is just a new loser. Averaging up gives you a worse average price so you just gave up what you just made.

    any system is just a way to keep you from dealing with the fact that no one yet has discovered where to get a free lunch
    #10     Feb 26, 2012