220volt, you really should buy Van Tharp's book to understand why this is a bad idea. As mentioned this isnt risk management at all. You are ignoring the losing streak, where the distribution with a tight stop will be like -1%, -1%, -1%, -1%, -1%. Then to get your 3% a month you have to take on more risk, then it spirals.
Keep a log and over time see what averaging up or down has resulted in. Don't forget those that turn into long holds that you lose interest and margin interest on. I've won with averaging on a losing position and I have lost more often than not. Looking through the trade log journal, the odds are against averaging and I've used that as a lesson. Time will tell.
Averaging down is dumb however pyramiding is very clever since it changes your approach to risk. It goes like, if your optimal position size is $1000 then instead of entering a $1000 trade each time, start off with one fifth or so size and then add to it until it reaches $1000. You're actually averaging down or up your entry price, but, above all, this will allow to soften your equity curve and thus reduce drawdown. In my opinion, money management is in fact the most important aspect of successful long term trading. I have a thread on this, which includes a trading simulation based on random trading signals and solid money management, to illustrate this point. In case anyone is interested, here is the link: http://www.elitetrader.com/vb/showthread.php?s=&thread=81984
wow, some real bad advice here, haha. The tyro's are out in full force with their bad advice. If advice is followed please have a tourniquet handy!
To start off ; the title of the thread is WRONG. You don't beat the market with MM but with a strategy that has an edge that produces positive results. If you have a strategy, you gonna apply MM in function of the risk/reward figures of your strategy; the better the risk/reward numbers, the more agressive your MM (aka how much to risk an any one trade) may be. MM is VERY important, even with a good strategy you can lose if you risk too much. Read Van Tharp's book on this issue.
the question is, did it "bounce" enough at any point to turn a loser into a break even/ winner? not that it didn't recover. markets simply do not move in a straight line in any direction--