Averaging down, done by someone with experience, market prowess and using minimal leverage, can and will work for extended periods of time. It's that occasional outlier move that WILL happen that blows days weeks or even months of gains that is the problem.
Here is a good example of a failed avg down trade posted a while back (Robert Hoffman) http://www.elitetrader.com/vb/showthread.php?s=&threadid=223845
Set a max position to manage risk. People get in trouble when they endlessly keep averaging down thinking "it has to come back". Personally, most times I like scaling into a position.
Another common denominator was/is: Averaging down in the hands of an inexperienced trader, a recipe for disaster. Averaging down in the hands of an experienced trader, a powerful tool. Averaging down when wrong and/or into infinity must not be assumed when one is addressing a seasoned trader.
Price action footprints are one of many foundations on which to build a profitable trading system. "Nailing the pending move" implies you know what's going to happen next. Price action tactics involve waiting for the market to "tip its hand" as to what it's more likely to do next. I've never met a price action trader who doesn't accept as fact that averaging down can be an excellent method of trading in experienced hands. If I was trading significant size, I'd definitely average down on a regular basis, as well as average up once the pending move was underway.
Rarely if ever have I disagreed with you - this time I do Last time I tried this type of bs it ended up costing me over $17K I'd rather trade it coming and going - making money both ways - not entering and wondering/ hoping Which is exactly what it boils down to To each his/ her own..., just count me out eta, Mkt is uncertain - period RN
I totally agree with you. I average down on every ES day trade I take up to 12 additional levels, is it scary? First year I was doing it, couldn't breath. Since my method has high percentage of breakeven trades, usually 45-55% of plus one tick on original Fill, averaging down makes all of these breakeven trades very profitable. I work at keeping losing trades to 5% (learning to read DOME volume helps much to cancel a signal) and under based on weekly stats and when I have a lose, it is fricking huge. After two losses in a row, I increase volume 50%, and last year I had three days of three losses in a row. It will take me 1-2 weeks of trading the entire day session to get back to even, I normally only trade 2 hours and 40 minutes. The funny part of my huge losing days, if I had been only trading original first entry signals, they were winning days. But I know all the stats of past 13 years, tick by tick backtesting and forward trading. Been day trading S&P500/ES since last 80's, it makes reoccuring patterns based on price/time. For me it is the best game around. But I never recommend to anyone to average down, there are some markets like Crude Oil, Gold or Russell that if you average down, these markets are unforgiving. ES is a very choppy market even when in a trend. Trouble with ES, once it is in a trend, very tough to add on cause it doesn't trend very long, whereas markets like Crude oil and Gold will trend for couple hours and can add on to a position at higher prices. Nothing wrong with buy high and sell higher.