Averaging IN (not Averaging Down)

Discussion in 'Risk Management' started by Newc2, Apr 12, 2018.

  1. Newc2

    Newc2

    but for years you've been posting here that 'risk management is the only edge'.
    Averaging in is better risk management in that the full amount is not risked until the position has proved itself. So I don't follow your line of thought. Have you finally changed your mind on risk management?
     
    #21     Apr 14, 2018
  2. Turveyd

    Turveyd

    Okay as said Averaging IN works, in a trend market with trend.

    You know, how when your counter trend and you average down then it runs against you, then you have a big loss ?? well it's the exact opposite of that, your brain will try to reject averaging IN cause it seems stupid, but has no issue averaging down counter trend, something to over come.

    Advantage is, you've dipped your toe in early on, if it turns out to be no trend, small, loss, if it's a good mover then you add more as it goes = big profit.

    Just keep moving your SL to exit at the BE Average cost, keep recalculating it as you average IN, that way your fully in position, won't run against you into a massive loser.
     
    #22     Apr 14, 2018
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  3. mbondy

    mbondy

    That's poppycock.

    One should be at their smallest when entering into a position to mitigate initial risk, and build the position as it either:
    1) goes their way
    2) goes 'against' them to a predefined limit

    Only someone who presumes to know with certainty what is going to happen next would put on an entire position at once.

    Scale in, scale out, no regrets.
     
    #23     Apr 14, 2018
  4. tomorton

    tomorton


    Just to be clear, I don't scale in and I don't average in. I add additional full-scale trades.
     
    #24     Apr 14, 2018
  5. TDMA

    TDMA

    The wonders of people using income trading techniques and extrapolating upwards to capital techniques, with no understanding that it doesn't work that way. Capital traders can always trade income, income traders can't trade capital, funny.
     
    #25     Apr 14, 2018
    murray t turtle likes this.
  6. SteveH

    SteveH

    Every trade entry is a separate risk/reward outcome. Just because contracts of the same market are accumulating in one trading account doesn't mean there's an added advantage with any degree of greater certainty.

    What is "bad" is reverse-position sizing, taking your largest position at the start and then "peeling contracts off" as the trade goes your way. Tharp mentioned this in his first "Trade Your Way To..." book around page 264. It forces you to have higher win rate avgs to offset the bigger losses from being heaviest at the start of a trade WHERE YOU HAVE THE LEAST INFORMATION ABOUT THE MARKET'S INTENDED DIRECTION MOVING FORWARD IN TIME FROM YOUR ENTRY.

    You see trading system vendors hawk their wares demonstrating reverse-position sizing with one small catch: they're showing results from strong trends, not how much is given back when the losses come...AND THEY DO COME...IN BUCKETS ON DAYS THEY WILL NOT DEMO THEIR LATEST "KWAN MAKER" AGAINST.
     
    Last edited: Apr 14, 2018
    #26     Apr 14, 2018
  7. Xela

    Xela


    He did indeed.

    And it's troubled me, intermittently, during the decade or so since I first read it.

    It's an interesting opinion, and it certainly has some validity, some of the time, for some trading-methods.

    It isn't "factual" or "objective" (though the way he words it makes it appear that way).

    These three things, however, are factual and objective ...

    1. There are also some serious, successful, professional, institutional traders who routinely do exactly what Tharp's advising against, there;

    2. Some other authors of similar stature and reputation disagree with him about that point, and have said so in books published since his, some of them even quoting him directly and explaining the reasons for their disagreement;

    3. What he explains rests on the assumption that at the time of entering the trade, there's less probability of its being successful than there is, later, of its continuing to be further successful after an initial price-movement in the direction of the trade - and this is an assumption, and not a fact: certainly it's sometimes true, depending on the method of trading, but by no means always.
     
    #27     Apr 14, 2018
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  8. ironchef

    ironchef

    Any studies that support that?
     
    #28     Apr 15, 2018
    comagnum likes this.
  9. comagnum

    comagnum

    George Soros was able to break the pound without breaking a sweat. He did that by adding on to his winning positions using his running profits - not his principal. That is asymmetrical reward-to-risk, this is sure a good way to make the big $ - at least for us swing & trend traders anyway.

    Soros waited for the market feedback (profit) on his initial entries before piling on the size. He did not not just assume he was going to win and go all in at once, he could not have tolerated the risk. This is known as the fat pitch where the reward-to-risk is at extremes. You lucky to find 1 or 2 each year.

    Not saying it's the 'right' way to trade for everyone. I always want to have on my smallest size on losing trades & my largest size on the winners. Layering in allows me to trade asymmetrical reward-to-risk. It sure works for me - just some insights hopefully.
     
    Last edited: Apr 15, 2018
    #29     Apr 15, 2018
  10. Buy1Sell2

    Buy1Sell2

    No. Prudent Risk Management includes putting your full position on at the start and using a stop. It also included letting your position run to maturity. Averaging is employed but those who are wildly over-extended.
     
    #30     Apr 16, 2018