Averaging down is addictive

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

  1. As long as no overtrading is involved, or the maximum size of each trade is well-defined, the above two ways for entry according to plan can be basically and virtually about the same, imo.
    #51     Oct 15, 2006
  2. Neet


    I would like to add that my #1 reason for considering an averaging down strategy is NOT stubburness but a product of the constant volatility I see in the market.
    #52     Oct 15, 2006
  3. At the moment, I am just using a simple system:

    On the winning side (long or short),

    I prefer the Martingale Model: 1+2+4+...contracts
    locking in profits at each level and doubling if it breaks through that same level (Level based on daily/weekly pivots divide by 2 i.e s1/2,s1,(s1+s2)/2, s2,...similarly for resistance

    On the losing side(short or long),

    just 1+1+1+...at s1,s2,s3,... or r1,r2,r3,...

    at the end of the day/week, I want the net to be positive i.e a

    I am only getting about 5%/month for 6 months so far and I
    hope to improve it

    Anyone here into Averaging Optimization & Martingale/Kelley Variation Models applied to the same contract but with Diff Accts?

    which must be adaptive (optimization varies from time/position size to time/position size)
    #53     Oct 15, 2006
  4. Neet


    Obtaining, on a consistent basis, a 5% return per month is imho amazing and I only wish I could accomplish this.

    Yet, all the time I see people come here and say things like "I am only getting about 5%/month..", only ? Man, I either suck very badly or most of you do for lying all the time. One of the two really.

    I have been getting 1.2% per month and you know what, Im pretty damn proud of it because I beat any savings account in my area.
    #54     Oct 15, 2006
  5. 5%/month(not compounded) is quite normal for the high risk method I am using..I could easily lose all I have made these 6 months
    #55     Oct 15, 2006
  6. This is an extremely risky method ...

    Looking at ways to reduce exposure gradually...

    winning side:

    Cycle of 1+2+4 -> take profits at 3 levels (half of s1,s1+s2...)
    revert back to 1+2+4 after 3 levels if trend continues

    If trend reverse and this becomes a losing side, just do the
    1+1+1 as usual but at calculated distance that equates the number of contracts of the original losing side(which may become the winning side)
    #56     Oct 15, 2006
  7. "Lets differentiate between 2 different things here

    1- Averaging down on a loser (only done coz one refuses to take a loss and hoping for a come back)
    2- Building up a huge position (planned and intended)"


    "As long as no overtrading is involved, or the maximum size of each trade is well-defined, the above two ways for entry according to plan can be basically and virtually about the same, imo."

    I disagree, I think they are a bit different. I think everyone on this thread can agree that adding in to a position in which they were clearly wrong to begin with is a bad idea for multiple reasons, but what does it mean to be wrong?

    Many of my trades involve fading moves which I think are extended. Over the years I've decided while I'm pretty good at spotting those moves, it's almost impossible to pinpoint the exact reversal point, so I usually enter with about a third of my position. Now if the position goes against me AND something else comes up, say I'm long VLO and I was counting on oil leveling off and instead it takes a dive, or I see something I don't like in the tape, then I'll get out. But I've learned, at least for me, if a stock like VLO has a 3 point move it can easily tack on another point for no other reason then getting further extended, and if I only have a third of my position on then I have no problem adding more. While I clearly am showing a loss on the first third, I don't necessarily think I'm wrong, I was just unlucky on the entry but the trade is still valid. In fact I may be happy to get the better cost basis. Note: I also have no problem adding to winning positions. I think Lescor said in some other thread that the entry point is one of the least important parts of a trade, which I think is one of the wiser things posted in quite some time.

    And lastly if any of you guys can pinpoint reversal points down to the dime and can do so 9 out of 10 times then please disregard everything I just wrote.
    #57     Oct 15, 2006
  8. "clearly wrong to begin with" ... LOL
    #58     Oct 15, 2006
  9. 1. When averaging down, know FROM THE VERY START how far you plan to go. Stick to your plan. If your trading stocks, think about how you'd feel if the stock went down 50% in a week. It WILL happen, eventually.
    2. Averaging down can be very profitable if done with the right product. Averaging down with ETFs and S&P 100 stocks (or stocks with S&P rankings of A or A+) is in general a good strategy. Averaging down with small cap stocks and speculative investments is a ticket to the poor house. I've averaged down with commodities when the commodity is trading at a multi-year low. I've never had any regret doing that. Averaging down in commodities coming off new highs--bad move.
    3. Bad news about averaging down=high drawdowns. Good news=short drawdowns.
    4. If you know you plan to buy no more than XXX shares, you may consider selling XXX puts. 600 max shares=6 put contracts. Sell at the money (50 delta),and if the stocks keeps going down, it will be the same as being long the underlying (100 delta). If the stocks just stays put, at least you have time decay working for you.
    #59     Oct 15, 2006
  10. excuse me but I insist

    Averaging down = I am right and I am gonna bet more to prove that I am right

    and yes you r gonna win many times using this strategy but wait for the loser to come, it will wipe out manyyyyy winners, for me this is not a good strategy to have one loser wipe out many winners EVEN if its precalculated and by the way, if you are manually trading this strategy I am gonna bet against you that one time you wont gonna stick to your plan as you will watch the red ink painting most of your profits so you r gonna stick to the loser beyond your plan for the hope of a come back, and believe me one it it wont come back.

    and I insist again, this is a whole different story from the guy who is building a LARGE position, in our case you are only accumulating losers.

    Now let the fight continue :)
    #60     Oct 15, 2006