It really though comes down to your methods, your backtesting, your losing percentages and knowing your methods inside and out. I day trade ES, and I will average down on all trades. And yes, once in a while I have a monster loss, but over the long run, I come out so much ahead. I use to have 35% of my trades of breakeven, but now the 35% is making something on almost all these trades. I certainly don't idolly recommend anyone to do what I do unless one spends enormous amount of time backtesting.
averaging down is not the proper way to daytrade... although you can get a reversal but if you trending and no reversals you lose... you are not averaging down but accumulating on bottom. bid difference. never average down on trending against your position. averaging down only works if their is a reversal. but now it's buy all dips what is the point of average down if no reversal..it goes straight down and no bounce. the problem with average down is if you are in margin you get margin call. and no reversal...that is how traders blowout. and for stocks the market makers know your position and will not reverse until you or all positions capitulate....like the short positions are now squeezed. the market makers knows everybody position...the net market position is short. this game is like being in horsetrack betting. the market maker is the house. rigging the game. and averaging down is a 'habit' too. and that monster loss could mean account blowout.
Let's be clear ... there is a difference between averaging down continuously until your account is blown and averaging down once or twice (or more), with stops, adhering to a well-backtested positive-expectancy system. So a blanket statement like "never average down" may be good advice as a general rule of thumb, but it may also unnecessarily prevent some profitable strategies from inclusion in a trader's arsenal.
If you truly believe the markets are manipulated and corrupted... Wouldn't typical rules as such be exploited by those that are manipulating and corrupted ??? Simply, if you're going to have rules...shouldn't they be aimed at countering the stuff you've specifically have identified as manipulation. Mark
I think the OP's rules are sound, and I try to follow the second rule, although occasionally I will fudge it. I also agree with the other poster's take on averaging down. There have been many threads here over the years on that subject, and suffice to say, reasonable people can differ. The main key to doubling up a position is you have to have iron discipline. If you have trouble honoring your stops, it's probably not a great idea, because you will end up with a big loss at some point. They way to do it, as laid out in the old classic book West of Wall Street, is to double up just before your stop is hit. Then if the stop is hit, you dump the entire position. The idea is your break even point is cut in half, so a minor bounce can get you to b/e. The other key is when you hit b/e, you dump the entire position. It is a defensive tactic, designed to turn a loser into a push.