Excellent way to deplete your account faster. When you are having repeated losses, either market is not cooperating, or you have not been performing well, or you have full of negative emotions.
Interesting topic. Personally one of ideas for next research/backtesting was mean reversion in stocks and scaling against the move. If the strategy works and it’s part of the plan, why wouldn’t you trade it? From my research stocks tends to mean revert more then trend and scaling in for a reversal makes sense so far to atleast dig deeper. Now whether I can psychologically handle a counter trend system is another question. Another good example that I can’t prove but makes logical sense to me would be some sort of long term fundamental/macro trading. If I decide that stock A is undervalued off fundamental data, and I buy it, if it goes lower, the logical thing to do woulr pick more up at a even better discount. . You could put most the position on at start and pyramid down(not up) against your direction. I guess my main point is if the risk is planned, the trade is planned, the exits are planned, theirs plenty of reasons you could consider adding to a loser. Ignoring the trade plan, exits and increasing risk beyond planned is an extremely bad idea.
Lol ..lots of professional traders average down or scale in ...whichever you wish to call it. But it is necessary to manage it correctly and not go past max risk level. Plus it isn’t a technique that works in all market contexts. So, context is important in order to use the technique without taking on undue risks. But to say “never do it” is textbook advice but advice, I for one, manage to overlook quite often if the context is right. LOL
I shorted the Dow yesterday, it went against me....i saw another opportunity to short it with lower risk so i shorted again, Dow plummeted and I cashed out profits on both positions.
I don't understand that. I don't think I pick the greatest trades. I believe if a trade goes wrong that's not a problem: it only becomes a problem if you stay wrong.
Trades can be right as far as direction. Entries can be off abit because of uncertainties. Scaling in remedies the situation. But should not be used in every senario as a trader may find himself/herself assuming bigger risk than what he/she is really willing to assume. Also, sometimes a trader may want to take a 10 lot position and is confident the general price action favors a certain direction but the entry isn’t quite so certain. So, instead of entering the position all at one time he/she would prefer to scale in at better prices (cheaper) than the original entry should the PA give that opportunity. Regardless, of the system one uses ...and regardless of the method....discretionary..or automated... entries are never 100% certain nor can they be. Just taking repeated stoplosses can slow bleed ones account. Scaling in allows a trader to be wrong on an entry and get out at break even or BE on part and profit on the other thus avoiding multiple losses because of bad entries. I know the classroom textbooks argue against the process and traders too argue against it but in the real world i have found it to be quite a useful technique to employ, however, not in ALL senarios, because not all senarios are conducive to using the technique. In addition, if used it must be managed correctly and one should not ever assume more risk than the account size can reasonably handle without the trader breaking out in cold sweats...getting nauseated...spiraling into revenge trading..pulling hair out..and enduring spousal screams.