Discussion in 'Risk Management' started by buybig, Feb 15, 2009.
If anyone is curious how it is working out, there will be no report forthcoming. Stosh
I have averaging down built in to my system but with two strict criteria - Do not average down if your position is going against the major trend and only average down if you are trading the market and not any individual stock.
I think averaging down can be a very useful tool. In my opinion, a lot of the "don't ever average down" talk comes from traders in the futures market, which can be very unforgiving and in my opinion is a bad market to average down into. Quite a few traders trade by choosing "inflection points" on a stock/future, and if it goes past that point, the inflection point has failed and can be deemed "wrong", and losses should be cut, since the original purpose of the trade is no longer valid. But for other strategies, such as reversion to mean strategies, the further away price gets away from wherever you calculate it should revert to, the trade looks better and better, and averaging in is part of the strategy, since essentially you are trading against some kind of fair value calculation. That doesn't mean you average in whenever you feel like it, or that you shouldn't take a loss. To add more size to a position going against you, you have to be aware of the overall market environment, and if not hedged, perhaps have an opinion on the futures if in a non-market neutral stock, be aware of news, other stocks in sector, anything that would cause it to significantly deviate from where it "should" be, and also have an idea of its daily range, and what is normal, what constitutes a fat tail event, what your new average price will be after adding, your available leverage, and your exposure to this security relative to whatever positions you have on and your net long/short market portfolio exposure. Even doing all this, sometimes you will get smacked hard and take a huge loss. I think a lot of people get too big too fast when averaging on a position, and they generally get focused on that position only, and are unwilling to ever take a loss on it, leading to disaster. Averaging down responsibly can be done IMHO, just depends on the reason why, and some markets and strategies are suited better for it than others.
Well said, Cherubian.
not gonna lie, I was avging down for a bit. it didn't work for me intraday, it was better to wait for a better entry.
swing trades, not too bad a strategy with an eye on risk and puke levels.
and in my retirement account its been pretty much a given. I'm gettimg my long term convictions on sale. so far its a fuzzy warm feeling and I've started focusing on fundamental concepts like "yeild," whatever that means haha.
I scale into and out of trades. You may call it averaging and thats fine.
There are a hundred different ways to trade and when someone says you should or should not trade a certain way it often best applies to the person saying it and maybe not as much to the person listening.
With that being said I would agree that for most averaging into a trade can kill your account.
for me its the way I trade in almost all my trades that are not scalping or discretionary.
Specialists and Market Makers do it every day as well.
Best of trading to you
I know that when I average down (add to a losing position) on ES it has ended up costing me more than it has made me. That is not to say that it can't work, but like anything, it has to work for you. I also never really incorpoarted it into my trading plan so I was basically breaking my own rules...which is never good :eek:
<h3>Day of Stop Losses</h3><br />
Today is another historic day in the making. I can't stress enough the importance of a stop loss. Today is the perfect example. Four of my five stop losses kicked in today. YES! I did leave some money on the table. But I think I have dogged a huge downside and locked in decent profits. Amounts where my stop losses kicked in today.<br />
<li><strong>DTO 234.02</strong></li><br />
<li><strong>SCO 53.68</strong></li><br />
<li><strong>SLV 13.82</strong></li><br />
<li><strong>DEE 95.76</strong></li><br />
My portfolio seems to good to be true. But it is real and simple, check the history I have been making posts before time.<br />
<span style="font-family:Bookman Old Style;"> Here is the live <a href="http://investics.wordpress.com/etf-performance/">portfolio.</a></span><br />
<span style="font-family:Bookman Old Style;"> You can find all historic posts <a href="http://investics.wordpress.com/category/etf-ranking/"> here.</a></span>
I post this for selfish reasons Sir, and I hope you will not be too upsetâ¦
Itâs keeping with your topic, but I am posting it solely for me.
And I am also keeping with my commitment of keeping it real â for me
Furthermore I am not suggesting anyone else get what Iâm saying, or see it the way I now see it now. (Yes Iâve changed my mind about averaging up/ down)
What I am saying is â that based on my trading this week, and the way in which I hold myself accountable...
I now view averaging up/ down as a totally unacceptable trading behavior, (counter to my original post in this thread)â¦ And left unchecked will ultimately put me into a position of losing bigâ¦.
This evening while reviewing my trades for this past week I determined I had averaging up/ down on 3 separate trades. All these trades ultimately worked â which is unfortunate â because it makes them even more dangerous, and makes me more susceptible to repeating the behavior.
The reasons I averaged up/ down this week;
1.) I am not trading my setups â obviously
2.) I am not clearly defining my stop points (Hey Redneck stops are the point where you know the trade failed â stupid)
3.) I am not reading price and staying in tune with the marketâs / stockâs â direction â open you eyes Redneck
4.) I canât admit when Iâm wrong, otherwise if I could I would exit and reverse (think too highly of yourself donât you Redneck)
5.) I am adding to a losing position (Redneck â are you too insecure to admit to being a loser)
6.) I am hoping price will come back â Hope now thatâs real good technique to trade (dumb ass)
7.) I am projecting my desires and wants onto the market â (Redneck â Do you believe the market even knows you exist, or cares what you want â itâs going to do what it will)
8.) I am trying to predict the market â Redneck you got lucky â periodâ¦YOU are way too damn dumb to know which way the market will ultimately go â SFB
9.) I used averaging up/down as a crutch â to compensated for MY ignorance and MY incompetent trading this week â period
This week it worked â you (Redneck) got lucky - PERIODâ¦ The next time / THE NEXT TRADE it could be your ass â STOP â and start trading correctly â Otherwise go get a job cleaning chamber potsâ¦
I will not rely on averaging up or down as a valid trading technique againâ¦ I am also thankful the market was ranging when I averaged up/ down this week - but never again
thank you for your honesty. wonderful contribution.
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