AVERAGING down/up = success?

Discussion in 'Risk Management' started by buybig, Feb 15, 2009.

  1. Do you think ET owners care if you do or don't provide "quality trading information"? Who the f- are you anyways?

    See, you don't get it. This site operates because sponsors are willing TO PAY. If you don't like this site, stop whining and just leave or go create your own site.

    Geez, why punish (and I use this term VERY lightly) other ET users who have nothing to do with your little squabble. Grow up already.

    #21     Feb 15, 2009
  2. Your account

    Edit Ignore List


    I just did it for you, it worked!

    #22     Feb 15, 2009
  3. you idiots ...best time to do it is when its oversold or overbought..when its oversold, average up..best free advice you will ever get..lol..

    just kidding..not a good idea to do it:D
    #23     Feb 15, 2009
  4. the1


    It only takes one mistake to wipe out an otherwise successful career - i.e. Bill Miller and FNM. That being said, averaging down on an intra-day futures trade is quite different than averaging down on a mortgage company during a mortgage crisis. I suspect an ave-down on a futures position would still entail risk management measures such as a cut-off point or a stop a certain distance from the first trigger. This is actually a much more risky strategy for a long-term investor because it's difficult to say what news will come out 6-months or 2-years from now but you can make a fair estimate adverse news will not surface during the next hour. In the game of investing and trading, nothing is ever certain but averaging down does have it's place but you still need to assess and manage risk. I would hope a trader who averages down still has a plan to manage risk and if that is the case then it's no better or worse than averaging up. Shit, averaging up can be worse because your average gets pulled toward your last trigger where an adverse market event could cause a quick negative position. It's all relative I suppose.
    #24     Feb 15, 2009
  5. Imo, to justify an average down the stock needs a catalyst. You can't average down on a price point or a 5 year low or whatever.

    If a stock gets hit with a lawsuit, a resolution is a catalyst, not some arbritrary percent off your entry or price point fundamental aspect of asset value, etc.
    #25     Feb 16, 2009
  6. mokwit


    Good point that I ommitted to mention - I only average down on price action that would cause me to buy the stock if I was not already in it.
    #26     Feb 16, 2009
  7. For example:
    I wouldn't have averaged into Stosh's trade posted earlier.

    - "Average into the longer term trend only."

    Look at the lean-down on the Daily, 480, 240 stochastics.

    The hourly chart looks like it could re-trace to the 830 level
    from here (816) but there's not enough (longer term)
    support for that premise to be adding to the position, IMO.
    #27     Feb 16, 2009
  8. bagg


    Ah, now there's some wisdom. Very pithy too, thunderdog.

    Averaging down is enticing for many but unless you have a parachute, you will go down in flames.

    Trading is all psychological once you have mastered the basic techniques. (But then what isn't?)

    I would NOT advise the OP to average down b/c as he says himself "I did it but got VERY SCARED" i.e. it is not comfortable psychologically.

    By fluke of nature, or maybe because Mummy loved me more than Daddy, I am completely comfortable averaging down and have done so for a long time successfully. But it took me an even longer time of watching the markets to find my comfortable zone and my parachute.

    If you want to trade you need to find something that seems appealing and there's only a few to choose from - trend following, range trading, reversion to mean, diversion from mean, averaging, hedging and miscellaneous (including tea leaves, using the force, advanced maths etc).

    Then, think through what the problems are with your chosen method and think of a way to solve those problems.

    Then get your head strainght and master your own personality strengths and weaknesses.

    Then all is well.


    PS it is almost impossible to get the psychological aspect right unless you have significant trading time under your belt in order to know what your personality actually is with regard to the market.
    #28     Feb 16, 2009
  9. I have observed some signal tracking sites, such as collective2.

    Averaging down seems to be one of the best predictors of systems that blow up. They do fine for a bit or awhile, and then suddenly there is that time with a major market move, where a particular signal service coughs up 4 months of profit in 2 days...

    Of course, the system that happened to be all in that day in the same direction as the major move, thinks they are a genius.

    It is all about Risk-Adjusted Reward. People who overleverage or average down as a matter of course, think they are on to something until hitting a sudden wall.
    #29     Feb 16, 2009
  10. DrEvil


    Look at it this way. Winning trades are not created equal. There is the kind that will move in your direction but they chop around on the way, requiring you to use a loose stop if you want to stay in for the ride. There is also the kind that moves quickly in your direction and doesn't look back, exposing you to very little risk and can run far beyond the usual move. You want to be bigger on this type of trade, averaging up CORRECTLY makes sure that you are bigger.
    #30     Feb 17, 2009