Averaging down is the right way to trade. It only doesnt work when your trading plan didnt work in the first place.
right, it's just a way to find out what exactly your risk tolerance really is some like the drip method some like the bucket method I like neither
I can walk on a sidewalk and never ever really think about falling off but if that sidewalk is a thousand feet in the air with nothing but a dropoff, falling off is all I would ever be thinking about so the idea about averaging is, now that you made it to the store on the sidewalk, how bout trying the short cut which is only ten feet off the ground and then the shortercut which is only 100 feet off the ground etc
it's my best system, but the drawdowns require faith, and I used up a lot of mine trying to believe in God.
The problem with averaging down is that you take your losses on maximum size and your wins on minimum size. I know that there are many people who probably do well with averaging down, but I`m sure they also take many large hits that eat into their bottom line once in a while. I typically go all in and all out, but occassionally I prefer to add more units at my original price or better as I`m proven right on the trade and then start reducing risk as the trade moves in my favour. Many ways to skin a cat.
That's not necessarily true. What if took major heat on a trade that you kept adding and then you ran it all the way home?
that's why, unless you have a better idea, if you are going to average down, you must certainly also average up, or it will be just as you say, big loss on big size. the funny thing is, I have found only averaging up does not tip the scale in any way in my favor. As a matter of fact it hurts. So, IMHO, if you are going to do one, then you need to do the other. it's perplexing why it seems to work.