Sorry for erasing the rest, I just wanted to make a point by making a simple change which will reduce ultimate blowing a retail account (and not just retail). You would average down when your entry is mistimed, nobody can prove this point to be wrong as it is simply a fact, you go long and market goes lower, so because you believe in your analyses you stay long and add to your position when you are in red by for arguments sake 2 points and keep adding after every -2 has been registered against your position. Now let's be frank at this point you have no idea whether price will return to your entry level, all you have is historical events and hope. So let's forget about averaging down and start using proper money management using stops. If price does not agree with your analyses you close your position. If market agrees with your analyses )) then price will undoubtedly return to your initial entry level and you can re-enter. That is already better than averaging down as this time you do not base it on hope, but use common sense and hard facts derived from source - price. If you add to the above a good entry method you will increase win rate. There are other things to be considered.
If you have read AVK posts you will see that he ONLY trades with the trend also. I hope everyone can focus on the comments by AVK and realize the title is just a catch to get you to read the comments. Cokes
Hey look, you guys can do what you want. But JSSPMK gives you a pretty good reason of why you shouldn't be averaging down highly leveraged products. And while smilingsynic make a good point in saying that averaging down will win on days when the market is choppy, the problem is the guys who are advocating averaging down here usually can't determine what the initial trend is ... nor when it changes. *** These boards are GREAT for bouncing ideas around ... kinda like hanging out at a bar and "talking shop", it's a great place to confirm what I have already determined by my own hard work and efforts. I'm really glad to see what side of the fence I'm on in this discussion, and looking around me, the company that I'm keeping. Good trading, JJ
I have read ADK's posts (not AVK, try to get it right if you're going to champion him). He has a good system of averaging down working for him by using relatively low leverage (as measured by % of capital at risk on any one trade) as well as knowing exactly what the statistical odds are of any given trading resulting in a successful trade, and knowing what his uncle point is way before he even pushes the button on his initial entry ... however focusing on his comments for the relative nOObs who only have 3 pieces of a 6 or 7 piece puzzle (no names here ) is going to result in a blown account. Not the worst thing in the world, but it kinda sucks considering the fact that tomorrow is another day, with more opportunites to trade and make profit if you have the bullets to work with. How's that for focusing on his comments? Good trading, JJ
I think a missing distinction here is that ADK strikes me more as a Swing trader and not exactly a daytrader. Maybe he can clarify this. Anek
Jimmy,there has been many bold faced laws of trading posted on ET over the years,and I have found very few if any to have the universal truth everyone loves to preach of..The mantras can range from never averge down,to never scale out and always employ stops ...Proper betting size is far more important... After extensive backtesting i have found no significant gains or losses by following any of the gospel of trading.There are no universal laws,and if there were,everybody would be doing them. It really boils down to what style of trader one feels comfortable with,and what their tolerance for risk is.With that said you can follow the "universal laws" or do the exact opposite.As long as your strategy is fundamentally sound,and the risk is managed,there simply is no right or wrong way.....
-- Cant argue there... -- Indeed, but it also means I have more exposure on the ones that do validate my ongoing analysis during the trade, which to me is when it is easiest to truly gauge the price action. To me, analysis doesnt stop at trade entry. It continues while the trade is developing, good or bad, all the way until exit. BTW, I only use limit orders, and now feel total inadequate due to your comment... -- I have to disagree here with your logic. Although sound, its not as effective in context. Using my previous example, if i entered at 700 and the market traded down to 695, and then back up to 705, I gained a profit of 5 for a drawdown of 5. However, if it sells down to 680, and I enter another position because my analysis still says this is a good place for a long entry I have risked 1 trade for 5 gain and draw of 20, and another trade for 20 gain and a draw of 5, which to me is a wash.. -- If there is no bounce, then clearly my analysis was incorrect all along, and Im exiting both trades for a loss. But, my initial entry was with trend, and until a lower high and lower low are made, my trade is still valid, just mistimed. Truly, Im not looking for a bounce, I am looking for a continuation of buying interest. If that doesnt come, then I am most likely seeing the end of the trend, and need to get out of the trade. -- Just for clarity, Im only talking about trading with the trend here. Trading counter-trend simply doesnt work for me. I did an analysis against all my trades a few years back, and was astonished to find that 84% of the time I trade with trend, I exit with profit, compared to 31% when trading counter trend. My style just doesnt work well counter trend. PS. Thanks for the intelligent discussion smiley.....
-- Not exactly what i am saying JSSPMK. I am in no way saying you continue averaging down forever until your hopes are crushed. Im saying current analysis of this trade says it is still correct to go long with this trend, even though the initial trade is in the red. You are dead on when you say " Now let's be frank at this point you have no idea whether price will return to your entry level". But this is true no matter no matter what the circumstance. If I am averaging in to a winner, I have no idea if price will continue moving up. If I am about to enter a trade, I have no idea price will go my way. All I ever have is my analysis and my goal here is not to just "get back to my entry level", its to get as much from this trending market as it will allow at this moment. For me to even consider the second trade, I have to beleive that not only was the initial entry correct, but that this entry is as well, with an even better price. For me personally, hope never has anything to do with, only price action. -- I guess this is my point though, price has not disagreed with me at this point. My entry may have been off, but the trade is still valid based on price action. Just because the trade has gone against me, doesnt mean that it is an incorrect trade. If price action still says that this is nothing more than a deeper pullback with trend, then price action is not only validating the original entry, but the secondary entry as well. Common sense would say its ridiculous not to take the second entry because it offers an even better risk/reward than the first. To me getting caught up in the fact that the first trade is in the red and taking a shallow stop to wait for price to reconfirm that the original entry was correct means 3 very bad things: 1) I took a loss on my original trade which had not truly been rejected by price action yet 2) I missed a great r/r trade because I was waiting for further confirmation 3) I paid twice the commission for essentially the same entry. These mistakes all equal out to a lot of money, which in my opinion is not good money management at all.....