AVERAGING down/up = success?

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

  1. buybig



    thats the kicker.. anyone w/ the ability/funds will do this.. for a retail trader using limited capital it could be death.

    are there parameters a MM or you work within?

    any contributions as to how a retail trader could avg into a winning position?

    #41     Feb 22, 2009
  2. This is for redneck and sawdr

    I had the same week as you did redneck.
    Everyday I made money by averaging up and down.
    A few things I want to share to help you guys out
    1. Price has memory (this is really the holy grail)
    and this is more for you sawdr
    2. If your doing it correctly (knowing when and when not to average in) and your still taking a loss, wait a bit. Take this with extreme caution but I believe it was Tom Baldwin that said Don't get out of a losing trade to quick. You can turn it into a winner or a less of a loser.
    This happened to me in beg. of Feb. and I lost about 3 grand back to back on 2 days.
    I realized that
    3. I have been thinking of it as money while trading. Bad habit. Thinking of numbers helps more often. This should help you with your losses and gains.
    4. If your gonna average in do it early in the day and not later. This will give you time to get out with a profit or a lesser loss.

    One final note. Had I taken my losses early and continue trading throughout the day I probably would come out with more profit. I'll try this out this week and see how it goes, I'm only debating whether I should do it on simulator or not.
    #42     Feb 22, 2009
  3. Redneck



    A Very Big Thank You

    Price has memory – Definitely Agree (one of my mantras)

    Better to average in the morning – Definitely Agree

    Issues / thoughts –

    Need to appreciate the environment well (market likely to trend back) – I am not comfortable enough with the current environment (I can see price taking a dive and not returning for a while) at some point

    Very easy to take an intra-day trade and turn it into a swing trade because price didn’t return soon enough… then it’s a crap shoot what happenes next

    Take the loss early and make it back - Definitely agree

    Thank You Sir


    2. If your doing it correctly (knowing when and when not to average in) and your still taking a loss, wait a bit. Take this with extreme caution but I believe it was Tom Baldwin that said Don't get out of a losing trade to quick. You can turn it into a winner or a less of a loser.

    Not disagreeing with your thinking at all Sir – but for me I see it as I didn’t respond quickly enough in recognizing it was a bad trade (staying in tune with price)

    Many times I have exited and reversed - making up the loss and some
    #43     Feb 22, 2009
  4. Redneck


    One other thought to add

    Getting in a position, then having it move against me, and waiting for a point to average up / down to maybe make it up

    Is akin to a psychological anchor.

    It weighs me down, limits my ability to see the other possibilities, and causes me to feel like I have my feet in concrete

    I’m a day trader – fleet of foot, mind, and action – waiting on a loser to "maybe" turn into a winner bogs these advantages down too much.
    #44     Feb 22, 2009
  5. This is what I meant in #4 of my list. Many times I do see a better trade and I'm stuck in a previous position.
    Another note
    Not being wrong isn't the only issue of sticking with the trade. Many times I stick to a trade and take profits only to realize that I did so too early. This leads me to stay in positions longer than I want to. I gotta just say thanks and wait for the next opportunity. (but it kills me to see price move in my direction another 5-10 points)
    #45     Feb 22, 2009
  6. Redneck


    Alright – my final post here (maybe) and to conclude my thoughts on this topic

    Last week a couple of us averaged up/ down and it worked – because

    Market was trending

    We did it early in the day

    We both believe price has memory, and traded accordingly

    I, and possibly Investwthme – also believe the market hates gaps and will eventually fill them (I know my stock had several gaps before yesterday (Monday Feb 23) – but filled every one on Monday when it dropped


    Yesterday (Monday Feb 23) the market indeed dropped – no ranging what so ever – So averaging up into a long position would have meant financial disaster (at least for the stuff I was trading)

    (Aside – yesterday was a good day for scaling in and out – but I digress as that’s a different topic altogether)

    So my conclusion (yours may very depending on millage)

    Will averaging up / down work – yes
    But will it also get your ass into a load of trouble – yes again

    My recommendation (FWIW)

    Use it if you choose – but use it wisely, and judiciously.
    Know, and appreciate the environment you’re working in
    Know the time frame you are trading
    Don’t turn an intraday trade into a across (swing type) inter-day trade
    Be emotionally centered
    And most importantly –Know when to cut your loss once an for all – and live to trade another day – that is unless you are NOT like me – and have unlimited capital :)

    I will also add – Just a Investwthme stated – used properly – it can be a powerful tool in minimizing a loss, or possibly turning it into a winner

    However (now out the other side of my mouth)

    If on the other hand you choose not to use it (very understandable btw) – then I believe the best way to eliminate it – is to trade exactly what price it telling you – have a defined stop – before entering – and use that stop zealously and without hesitation

    Investwthme – Thank You

    SnugglePuppy666 – Thank You

    #46     Feb 24, 2009
  7. Redneck


    What a dumbass I am -

    market was NOT trending... market was ranging

    3rd sentenance down is wrong

    #47     Feb 24, 2009
  8. Great posts Redneck.

    Never average down again. (I learned my lessons).

    It might be OK to scale in one time early, but NO more than that!

    Remember, you can always RE-ENTER, only a commission away, by then you will have a better cost, and you have the freedom to go the other way if the price action tells you so!

    Refer to ¡°Phantom of the Pits¡± rules£¡Master them and they will be your Holy Grails!
    #48     Feb 24, 2009
  9. Suspose you have 50k capital, and take a 3% risk.

    thats 1500.00 risk a trade, if u want to average down, and still keep 3% then divide that 1500 by 2, thats 750.00

    (this is how i trade) say xyz stock is 20, the high is 22.35, and previous days low was 19, take 22.35 - 19, and you get 3.35

    now take 750 and divide by 3.35, and you get 223. 223 shares for this one trade with a stop at 18.99, if you get stopped out, you only lose 1.5%

    Everyone says averaging down is SOOO risky...yes, but it doesn't have to be if you're smart about it. I dont do it, but this is a system you could use.
    #49     Feb 25, 2009
  10. Every time you look at something as vague as "averaging down," you have to look at it in the context. I will give some examples:


    You see a stock price moving into a major support level at 17.00 which it doesn't go below. The price of the stock now is at 17.13 and the future is rallying. You decide to take a long position right away and hit a market buy at 17.13. Then the another wave of selling takes place to pressure the price to 17.01. What do you do?

    I would "average down" and buy another 100 shares, and set both of my stop at 16.99. This is nothing wrong with this because you know what you are doing and you will be disciplined to get out of the very same position and take you 17 dollars loss!

    By doing this, it gives you a lot more flexibility. If there is a small rebound then you can scalp a couple of cents opportunity so even if your original stop is hit, the independent second 100 shares will make you some money.


    Say you long C at 9. Now it drops to 8, 7, 6 and so on. You just keep on piling up ur shares for it when you have no stop or no strategy in you mind. This is the case when it will be a disaster!!

    Every rule out there could be violated if you know what you are doing. Not cutting loss is not one of them.


    Just saying so people can weigh my opinion.
    #50     Feb 28, 2009