If you take major heat on a trade and keep adding to infinity providing you have an unlimited bankroll, the chances are small that you will bring home a lot of bacon since the profitable direction was against you. You may end up getting out eventually for a small profit, but it`s still not a smart thing to do. And even if you on average make profits averaging down while taking heat, you will one day take the mother of all losses that will eat way at your bottom line including all your small wins and then some. It`s a function of probability and not a very robust strategy, IMO.
I agree 100%. I just get the impression from all the people on ET who post trades using this style that they do not have a plan for adding their full line if they don`t take heat on their original entry and the trade moves in their direction. Thus, they size up as the trade goes against them, but take their profits on minimum size.
Martingale is the only mathmatical system that has no risk of ruin, providing you have an account balance of infinity and a market with unlimited liquidity
well, that's the life of a scalper. Risk reward of 4 to 1 or worse, average down all day long just to get your one point (or tic). And when it doesn't work out, go home a swing trader, and when that doesn't work out end the month a position trader. most disagreements on ET are about two people talking about totally different things but using the same words. Like when a woman says, "We need to talk." And the man braces himself for some kind of transfer of information. And he just sits there and listens, and she goes on and on and never makes a point. And just about the time he looks at his watch and is going to ask her, "OK I've heard all your crap, now what is it you want to talk about? She smiles and says, "Sometimes it's just nice to talk." So they are both using the same word "talk" but it means totally different things to both of them.
otherwise, there's an ET member with the handle rehoboth, that turned me on to a dollar cost averaging system that uses both time and price, and I think if you use it (I call it rehobothing) that you will notice a marked improvement in the mannersims of your account
The mother of all loses is relative. One day, you will meet that margin call, but if you have taken 5000 bucks to 250k during that time, and then get that 50% haircut. Did you come out ahead. or not?
Oanda technically give you an account balance of infinity, and FX technically gives unlimited liquidity. What I mean by this is that there is no time that you cannot trade with this broker. No matter how deep your losses are, if you have any money at all in your account you can trade. It is very like mass and the speed of light, you can never actually get to zero. So if you know when to trade, you literally got it made.
I often cost average down into my stop, S. So if I have a stop set at -10, I'll buy again at -2, -4, -6, -8. In all cases though my stop remains at S. I've had a fair amount of success with this. This is especially effective when the price is bouncing around in a range. As it heads back up again, I take the pieces as they become profitable. As it goes back down again, I buy back into my stop again.