But remember, they are not averaging down to make money. They're just trying to lower their cost in order to get out of a bad position, caused by letting a small loss run into a big one. Not very professional, is it? In the old days, while spending the day in the broker's boardroom, I saw many who habitually averaged down. Some left by the door, but most left by the window!!
Every trading decision should be made independent of one's current position in that underlying. If averaging down makes sense for all reasons (technical, fundamental, etc.) other than reducing cost basis--by all means average down. The market doesn't care what your unrealized P/L is in a given trade--neither should you.
I neither know nor care, but I offer you the observation that some people have a "contrarian public image" that (for whatever reasons) suits them. And the further observation that if you're going to try to learn from people who advocate trading without stop-losses and averaging down, you're not going to be here for long enough to benefit from conversations with any ET members who are actually making a living. Apologies for sounding so outspoken about it, but these are both pretty sure-fire ways of stacking even further against yourself a deck which is already not exactly stacked in your favor in the first place.
(I apologize ahead of time, but I haven't read any of this thread -- only scanned it. So I don't know if the following thread adds or not, but "long ago and far away" I was a nimble tick scalper and *so*-loved being in cash at the close of (nearly) every day. With that, I recall enjoying the following thread......) https://www.elitetrader.com/et/threads/averaging-down-up-success.153994/ I'll try and contribute something fresh later...
Averaging down without an Uncle exit is dumb. Averaging down to the point of where your exit should be, is a Do in my book of love entries. One must remind oneself on why you originally hit the trigger. Its not always possible to get instant gratification on a trade so if your risk is to a set point than why not get the discounted price. Do we not like good deals? Yes on increased risk exposure which is the negative side to this concept, but if your not all in than why not? If you are weak in the money management skills than learn before entering into the arena. Dumb money always forces you to do something you don't want to do. Patience is necessary, and one cannot reap immediately where one has sown. Kierkegaard
Averaging down is a random reward. If one enters and stays on the wrong side of the market, max pain will generally lead one to discover alternatives. Fortunately those alternatives require work to understand, a system to contextualize and are not accessible to those who want easy answers. Systems building comes from mind building. Understanding different systems and where they overlap or not comes from choice in paradigm.
It sounds like you're trading without determining before entry via analysis of how much you expect price to move in your favor or where your determined critical levels of support/resistance are. When you place a long trade, are you entering near a main support? If not, what is your rationalization for entry? Your stop loss should be placed below that main support area since a break at that level means your analysis was incorrect- and why stay in a trade any longer at that point? Your controlled RISK = the distance from your trade entry to the stop loss area. If you're not using a stop loss, your RISK defaults to losing your entire account due to a margin call if the market moves sufficiently against you. Your primary directive as a trader is to protect your principal. You have no such protection if not using stops. If you're using a stop loss - you would only have the option of averaging down if you entered a distance away from your stop. IMO, you're better to wait for a better entry so you don't need to average down as you are increasing your risk/exposure and requires advanced management skills. Next, assuming you've determined what your potential profit is, it should be high enough to justify the risk. In other words, you shouldn't be risking $2000 for a chance to make $200. If you've determined your profit area in advance, you won't be tempted to close your trade early for a smaller profit. If your accuracy becomes consistent you can enter with a larger position and start scaling out at each determined resistance level to lock in profits while maximizing gains. Example: You enter at 100 with the following info determined from your analysis: expected move to main resistance area of 107, main support at 98, minor resistance at 104. Your stop loss is set below 98, say 97 or 96. You scale out a portion of your trade at 104, and you can sell remaining at 107 or scale out again and use a trailing stop for the remainder. The key is don't trade without stops, or else you are just waiting for your own Black Swan event to blow up your account. It's only a question of time until that happens.
You don't, the markets are perfected to make sure if you succeed averaging down a few times it will eventually evaporate your account. The simple point is you don't know when to use it and when not to, but that's the point. Averaging down is a fundamental process which breaks technicals, there is always some one or some event that will wipe you out, the smart option is to not use it unless you can guarantee you are more experienced, and more determined, than the best.
I didn't thoroughly read your complete post and the replies -- But you never average down. Averaging down is like sticking in with a bad relationship or date...if things become unfavorable or weird or that inner voice/intuition tells you otherwise...then Get Out, ...We're here for good times, not for storms -- or something potentially permanently ugly,
Only time it makes sense to average down is, if you are a value investment fund IE you're continually raising funds...