Averaging down is addictive

Discussion in 'Strategy Development' started by Neet, Oct 13, 2006.

  1. Neet

    Neet

    Today I was down 4k net. However, due to averaging down I managed to turn it around and make 3k instead of losing 4k.

    I am perfectly aware of the consequences of why averaging down can be extremely dangerous. Now, since it is addictive anyone out there who uses this technique RESPONSIBLY ? If so, what are your rules.

    There must be a way to average down without losing your wallet if you are disciplined about it.

    Looking forward to your strategies and techniques.
     
  2. check out $CostAVGMan's thread. He avg.'s down I think. Good investor imho.

    Personally I'll never avg. down.
     
  3. pray
     
  4. If you can trade the right levels then your add on can be very precise and calculated. You will know when you are wrong. Just always have a stop placed when you place the trade if your an emotional trader. 9 times out of 10 I can get out most at BE with an add on and then hold for a small profit on some runners.
     
  5. Neet

    Neet

    Apex,

    That is what I have been doing lately.

    Started a trade, with a 2% stop loss, 250 shares.

    The stock retraced 1%, added 250 shares.

    It hovered around the -1% area for about 2 hours.

    Then it retraced an additional .5% and I added 500 shares.

    After this the market experienced a mini rally and I took some profits at the original entry. Then the stock rallied for 1.5% and sold everything there.

    I never moved the original stop and wouldnt have done it anyway as it was .20 below a MAJOR support area.

    Not sure if this is acceptable but it paid off.
     
  6. it is acceptable imo if u are accumulatin' a stock at lower levels as part of an investement/trade plan or if the reasons for bein' in the trade still exist.
    otherwise it's a big no-no imho.
     
  7. Many scale into positions, not to improve cost-basis but to reduce market impact. Obviously this is not the case outlined above. If 250 was your limit, then running a martingale is suicidal in the long run.

    Don't average losers if you want to stay in this business.
     
  8. if youve got the determined levels, sometimes you find the bicycle effect at a price lower/higher thn where youd like to go into the position fully, i.e. you start shortting at .50 knowing you want .70 but you get a chance to be in and out at .50 down to .40 10 times and never would have hit the initial .70 so in some ways it can work as long as you are disciplined and know your levels.
     
  9. Sure, provided you're entering with the notion that you're not fully committed with your first fill.
     
  10. Neet

    Neet

    Well, one could say. Im fully committed if it goes up and doesnt look back :) Otherwise Im not ! heh

    Just kidding, thank you for your input.
     
    #10     Oct 13, 2006