Averaging Winners

Discussion in 'Trading' started by IndexSwing, Mar 10, 2008.

  1. Do any of you average your winners. That is if you intend to sell two units let's say, you would first sell one and set your stop. Once you are profitable by x amount you would then sell the second unit and move your stop up to break even on the first. That way the amount at risk is half as much as it would have been if you had sold both at first and your profit potential is almost as great. In other words an anti martingale method similar to the Jesse Livermore method?
  2. Fangdog


    I don't see anything wrong with your thinking, but I am sure there are some on this forum who do.
  3. Isn't "averaging winners" the opposite of "averaging losers", which is the terminology for increasing the size of a trade when it moves against you. So averaging a winner is just adding to a winning trade as it goes in your favor - a very advanced technique.

    Semantics aside, as far as scaling out of winners goes, I do that, generally way too much way too early, but it's a great money management technique for some strategies... depends on the edge you're trading. I think it's good for playing off support/resistance, where you expect a bounce but have no idea how far it will go, so you disperse limits at varied intervals based on your assessment of the probabilities of the price reaching the different levels.
  4. Exactly, increasing the size as the trade moves your way. I'm not sure if there is a proper term for this but it is the opposite of averaging a loser. I had read that Livermore did this and this weekend it dawned on me that maybe I should do the same. So today around 1:15 eastern I concluded that the NDX was going lower. I purchased one NDX put at $12.90 and set my stop at $11.60. I then bought another when the price reached $13.90 and reset the stop for both at $13.00. I closed both at $14.70. So if I had I had instead bought both at $12.90 I would have made more, but on the other hand if I had been wrong I would have lost more, overall a better risk/reward.
  5. yeah but it works better in a right or wrong strategy. if you dont average a winner you can still make on trades that dont hit your target, if you do average a winner and it only goes half way, you exchange intuition for a set stategy, which is either right or wrong. If you can stick with your strategy without using intuition, I would say its a good thing to do. Im speaking overnight only of course. This intrady market will kill that strat in my opinion. :)
  6. All else the same, averaging up on scale will lead to many small losses and a few large winners; averaging down on scale will lead to many small winners and a few large losers.

    When it come to intraday trading, averaging down futures (ES, for instance) is a ticket to the poorhouse. When it comes to long-term investing, averaging down etfs is a ticket to riches.

    If the system/strategy is not profitable, no amount of shuffling the deck will make a long-term difference.