smilingsynic has posted some of the most logicial reasoning i've ever seen on why a trader should trade with the trend, and while i'm sure ADK's (not AVK) posts have been enlightening to some, saying "yep, another winner, another winner, another winner" doesn't sound to educational to me. the responses have been appropriate and respectful for someone who is recommending such a controversial system as being the "holy grail" ... while admitting that he actually just is not a very good trend trader. good trading, jj
I would venture to say, "great sax, why don't you go back to trading this method then if it's such a BIG TIME WINNER!@!!!":eek:
Simple answer 180 over 130 and 2 packs of cigs. in one night to boot. Could not take the pressure in more way than one if you catch my drift.
Face it guys: LOSERS AVERAGE LOSERS The day you realize that your mind will begin to move in the right direction of being a successful trader. Until then ... you may be making money, but you ain't no trader (but I still wish you good trading, and I wish you well despite my strong statements). JJ out.
The ultimate crunch comes when market turns, even intermediately. What will kill this system is a row of obstacles that are bound to happen once there is a change in trend. Most retail accounts can't handle averaging down because of leverage offered in e-minis. Sure a person may look over last 5 years or whatever the period was and make a case for averaging down, problem comes when a market turns and a trader's position may become overextended as that trader will in most cases remain being biased with the previous trend. That's how most hedge funds have blown up, being on the wrong side of the fence and sticking with their analyst's views. You don't necessarily have to trade with trend as long as you are in sync with market oscillation patterns and know how and when to stop.
I have a question for the OP regarding if he uses this method to a) blindly assume that he can average until he eventually turns a profit, or b) turn a losing trade into at least a better losing trade using info from the market? While "a" appears nearly impossible, and would require some substantial capital to actually survive the inevitable super loss, "b", in my opinion, is a very good strategy for experienced traders. For example, lets say I go long YM on a pullback of the trend around 13700. The trade meandors around for a while and breaks down to 13680, which I know is another area of support. At this point I am down 20 ticks. However, 680 is still a support level for the main trend I am in. Its also a level where I would take another long trade, even if I wasnt in the current losing trade. So, I avg in another position. I havent averaged into a losing trade, because I am still not sure the original trade is a loser at this point. I am down, yes, but the trend has not been confirmed as changed at this point. Rather, my original entry was more likely too early on my part. So now I am long 2x my original trade at an average of 690. If the trade now begins a rally back to 690-700 and confirms the existing trend, I am out breakeven or better. I have to determine if there is enough momentum to sustain a move back through previous support(700) or if this is in fact the lower high of a change in trend and exit accordingly using the price action the market is giving me. The second outcome is that another wave of selling comes in and drops the market down to lets say 16660-55... At this point, I now have more information telling me that my original trade and secondary trade are incorrect. So i would exit both of them, preferably on some weak bounce. I havent actually run any numbers, but I would guess to say that this strategy goes my way 9 out of 10 times. The key to all of this is that I never enter a new position fully leveraged. I know that I am human and make mistakes. I may misread the market, jump to early, jump to late, etc., so I use it to my advantage. Ive read the arguments that this strategy simply means I am under leveraged on winning trades, and over-leveraged into losing trades, but there is a fatal assumption in that logic. This argument assumes that you know the outcome of any trade before it takes place, which is simply not possible. You may have a good guess, a high probability, a hunch, whatever..., but it all comes down to you dont know. You need information from the market, and the only way to get that information is to be in a trade. The trick is pulling the trigger win or loss when you finally have the information.
Winners average winners, but only on trend days! And only on instruments that tend to trend (high ADX). I don't average up on the ES, but on crude (right now) and the NQ, yes. And averaging down can be very profitable on days with no clear trend. I am not doubting that. One key is to know when it is a trend day and when it is not. I don't start trading until 10 AM, because before then, I really cannot say with any level of consistency what kind of day it is going to be. I have a checklist of the qualities of a trend day (some, but not all, of the list was posted last week in the index futures section). When else should one average up? When one gets multiple buy or sell signals. I do not believe that there can only be ONE buy signal or ONE sell signal. William Dunnigan, back in the 1950's, wrote about MULTIPLE signals, and that's when he suggested averaging up (he had a system of logging the trades that I personally feel was a bit anal retentive, but it worked for him, I guess). When I say that I advocate averaging up, I am NOT saying that one should simply scale buy every X points up. Rather, one should average up when one has another buy signal. Think about it. If you go to the doctor, and you have one symptom of an illness, you might have it, but you might not. If you have THREE symptoms, more likely, you have it. Multiple buy signals suggest a strong trend, and that is when you want to average up. If there weren't a strong trend, there would not be that many signals. If one is (carelessly) averaging down, one will also get multiple buy signals in a trend: a DOWNtrend. And we know what happens to those who keep buying in that kind of situation. They lose massive amounts of money. See the Trader P/L folder for notable examples of a Porsche (the e-mini equivalent of which) literally going up in flames. If one is buying breakouts, for instance (not my strategy, but that is a time-tested one), when are there the most breakouts? In a strong trend, of course. One buy signal suggests that there might be a trend. But perhaps not--time will tell.
Many big winners in a trading system are winners right away (they have less maximum adverse excursion). Averaging down ensures that you have less exposure on the winners that go IMMEDIATELY in the favor (the same applies to those who always use limit orders--they get filled on all the losers, for sure, but not on all the winners!). Of course, a trade may go against, and then come back. And, yes, a trader can average down and still come out ahead. But the price is drawdown. A profit of 5 with a drawdown of 5 is a heck of a lot better than a profit of 5 with a drawdown of 25! You are right in that one can sometimes get out if there is a bounce. But what if there is not a bounce? The stronger the trend, the smaller the bounce, remember. I have nothing against disciplined countertrend trading per se, but averaging down with that approach is playing with danger. I would guess that the majority of those who cancel their stops tend to be in that category.