As Susannah just pointed out, it has to be in the context of a strong trend, and you have continued confirmation of the trend. Adding to short term long position at present is just crazy. There are thousands of traders, like myself, ready to pounce on any sign of strength. On the other hand, there have been many, many opportunities lately to build on a short trade, because that's where the long term sentiment lies. The "trend is your friend" doesn't mean a trend on one minute charts. You need to back up quite a bit and look at the forest to see what's happening. If I'm trading a 1 minute chart, for example, and I'm even thinking about adding to a position, I'll want to see a strong trend on a 15 minute chart, or longer.
Stop thinking in terms of what price you entered at, what size you put on, and how much open profit you have. Start thinking in terms of the risk/reward and % chance of success, and thus the appropriate position size, from the *current price*. It is completely irrelevant how much you entered and at what price earlier in the move. All that matters is the current attractiveness of a long position. What you should be asking yourself is "if I was flat, how much should I buy here?". Then make sure your position size is identical to your answer to that question. Also I don't see how you got "taken out" by one red bar, or how that was at all affected by "averaging up". Whether to be long, flat, or short is completely independent of your position size or the entry price of any of your positions.
Adding in a downtrend is logical if you are an investor, not a trader, because lower prices for a solvent business generally mean better value and thus lower risk. If I am bidding for an envelope with anything between $1 and $10 in it, clearly my risk is lower and my value better at a bid of $1.10 than at $3, thus I should bid more at that price than the higher price. Adding in a downtrend also makes sense if the downtrend is on a shorter timeframe than the one you are playing. For long-term trades, in most cases I completely ignore the intraday trend and in fact would prefer to buy when the market is down than when it's up.
If one of these 2 might be PTF, then who might the other be? PM if you don't want to divulge this answer here for all to see.
A distinction must be made between what defines a "trend" and what defines a "pullback" or just general price action. To me, trend implies the macro picture and therefore if the trend is down, buying more is stupid. If the trend is up then buying more must be smart. This does not preclude you from waiting for a pullback to add in an uptrend, although it seems to me that every downtrend began life as a pullback.
I think this is best left to position trades typically and for me only to be used for what I perceive to be a possible "homerun" trade setting up using multple timeframes.
given cuttens cogent explanation... you would think for most daytrades in mature markets - as the day goes on it would make less sense to add. --
These are my beliefs. Nine out of ten futures traders reading this thread will blow out. I don't say that as a prick but it is what it is. Many of you have talent but don't have a prayer because you're under capitalized. Being that you're short on funds you're already trading too big on your day to day unit. And as we all know "day to day" means a zillion sub-optimal trades. The trouble with being a 1 or 2 lot trader is you wind up being no more loaded up on good trades than on run of the mill random bets. Most of you are far better off trying to hit outlier winners than go steady but slow. I'm just being a realist whose traded every day for 26 years but it's more probable that we'll find a way to be lucky than ever master being good. Adding to winners is of course risky because of increased size and it's often emotionally destabilizing. Giving that unbooked profit back on the retrace sucks. Last year I had several nice ZB trades where I'd short something like 119's and then add at 116 only to subsequently pay 118 for the package . After it happens a few times the thought process begins articulating, "next time I'll be happy to just punch the time card and take the money." What you are hoping for by adding is to catch an in your face move with max leverage. Think about some of these massive 70-100pt ES swings. Let's say you have 20k in your account and you trade 2 lots as a unit. And let's say on Oct 28th you'd been bullish and bought a 2 lot in the high 840's with your normal 5 pt stop. (a gruesome thought that you're risking 2.5% of your equity on such noise as is, eh?) After a few minutes of chopping around your entry the market catches a quick bid up to 865. Maybe by now you bring your stop up to b/e. Normally you would've taken a 6-7 point profit but you smell that this could be a big move and you're hoping (nothing wrong with that emotion) that short covering will spur an out sized rally. First though the market has a rotation off it's 865 high down to 855. You've just given half your profit back. You're bummed, nervous, remorseful at being a pig but the reality is you've still got 10pts in the trade. Your analysis might tell you that most every time ES gives back more than 50% of the gains from a multi bar rally it fades to new lows. So for all practical purposes your stop could be higher than your b/e. A ruthless trader then thinks, "if I'm going to lock in a profit with a higher stop I'd might as well add and forgo any profit if I'm stopped." So you then buy 860's with an 852 stop. You're long 4 with a b/e stp in place. Now you go through the same tribulation as an hour earlier. The market holds ST support and goes to 875. You now have perhaps your biggest day ever, up over 4k. What happens? The market which for days had been finding resistance in the 870's comes off hard. In minutes ES is back below your add price of 860 but several points above your b/e stop. Once again you're nervous and remorseful. "I KNEW there was resistance at 875. I shoulda gotten out! I SUCK! I KNOW we're going to make new lows now." Meanwhile your stop has still not been hit and before you can go into full tilt panic the market creeps back to 870. A light clicks on that maybe just maybe the market with less than 2 hours to go is going to attack this confluence of resistance and ram the shorts. Knocking on heaven's door late in the day. Certainly not a low percentage thought. What to do? If the market is indeed going to punch through in dramatic fashion it shouldn't sell off again. It's shit or get off the pot time for stocks. So you buy another 2 lot, move your stop to 860 and prey. Nothing wrong with begging to a higher power as long as you respect your stops, lol. God shines upon you because in the largest 1 day rally in history ES goes up to 941 on the close and you've just made almost 25K-better than 100% ROI in a stressful but fruitful afternoon. Nice job because to-morrow you'll be right back to the mind-numbing bullshit of trying to predict random 5pt moves........