I'm aware that averaging down is frowned upon, usually for good reason. However, if you enter too early and see the market continue when you expected a reversal, it may make sense to hold and add another position nearer the turn rather than take the loss as strict discipline would dictate. I believe this is called working above (or below) a position. Of course, judgment has to be employed if you were just plain wrong on all but timing. So shoot me!
ADK, If he was one it would be conceited not ... And if thats what you mean its time to become SIK (scaling in king) instead because adk just makes you look like an idiot. And to PointOne (which is better than PointLess) " if you enter too early and see the market continue when you expected a reversal, it may make sense to hold and add another position nearer the turn rather than take the loss as strict discipline would dictate" is averaging down and is stupid. If one plans multiple entries then one is trading a plan and assuming its been tested is wise. If one is responding on the fly because, in an emotional moment, "it may make sense" then one is not trading a tested plan and is thus, whether one wins or loses that particular trade, not wise. Cheers
I'm not sure what the exact context of this post is, it's fairly half-baked as most ET posts tend to be. If you're talking about buy / hold / add in a scheduled investment plan: I don't think it is the best option from a risk/reward standpoint, but it is unlikely you will "blow out" with this method. For the average person, this will probably put them in the top half of 20-30 year returns (sadly). There are only two ways to get drop kicked with this approach besides absolute market failure. 1. Use of leverage. 2. Cost of carry (fees, opportunity cost) -TD80
That's the same thing that PairCo teaches except they use Pairs. They teach a 5 layer avg down and work the fluctuations between Pairs. I believe the term used was 'capturing the rolls' meaning to put on a layer when it goes against you and take it off when it goes in your favor. Lots of small profits and one big hit if you are unlucky to get nailed by a trending pair. Hopefully, you captured more than enough profit to cover the hit if it ever happens.
austinp, thanks so very much for this most insightful on honest post. I tried in good faith to have a normal, value added discussion on TradingZoo (I'm a new member) and was attacked with the the fervor of the Gestapo by the man you allude to in your first paragraph--Reaver. He brings along a pack of hungry wolves (you know the names) to make sure there is nothing left in the threads except him and his pack. Ultimately, the thread gets so hijacked and convoluted, it's either removed or locked by management. It's frustrating and very disappointing, but I guess that's life here in ET. Reaver, by the way, lead the assault on Timmay as well. So he is batting two for two in the threads you mentioned. I've really gained some great insight from reading your comments. You are the real deal and most helpful. Very astute to observe what Reaver' mission is on ET. I guess the management approves of his ilk and modus operandi. Keep up the outstanding work.
<i>"I assume the P is for prick. You don't have a clue as to what I'm saying. You conceded bastard."</i> Maybe I don't know what you are saying. Since it was you who started this thread to express your thoughts, why not take the next logical step further and explain yourself in complete detail? Here is what I know for sure: traders face an almost impossible mental = emotional task exiting the infrequent (?) but large losses when they come. Logically, scaling in against market direction seems like you just can't lose trading commodities that way. Hey, someone ought to write a book with that title :>) Realistically, that tactic works extremely well more days than not. Traders can fool themselves into thinking that scaling in will always save the day. Then comes that session (time period) where price action keeps steaming straight against their ever-growing unrealized losses. Guess what happens next? They freeze, losses mount, weeks or months of prior gain are wiped away in one quick swoop. Think that cannot happen? We've seen it right here in the P&L 2007 thread as living proof. * Please accept my apology for assuming the worst. Now go ahead and explain to all of us how your version is different from everyone else who ever played that game.
P.S. the term<i>"conceded"</i> means accept defeat. The term "conceited" is probably what you meant instead. Sort of like the difference between words "loose" and "lose", for example... similar spellings, very different context of meaning.
I always average in against a 1% stop loss and make 3%. This is how the props at major investment banks do it. Quickest way to double your bankroll if you have a precise way of doing it and the proper sized account to support the position sizing required. By far the best way to trade if you know how to do it.
The math must be sound. If it's not you will sleep with the fish. Those who blow up doing it this way are the ones whose account does not support the position sizing required. Your account size must be able to support a 10% gap against your position and not blink an eye. Takes money to make money.