I respectfully disagree with this. A good cost-averaging plan allows you to kind of "latch" onto the price as it moves down. It leaves you with a pretty good entry point when the instrument moves for you. If you get out entirely, it can be hard to judge when to get back in.
Yep that is what many if not most of us have been taught. We have also been taught scale in as price moves in your favor and trail your stop. We have also been taught there is noise in the market. We also been taught go for bigger moves don't jump in and out. Oh and never move your stop. Don't forget must have at least a 2:1 RR. Been told the HFT's have ruined daytrading...the markets are manipulated and they are out to run your stops and take your pennies….on and on... No wonder most traders lose. We obey the rules as much as we can and still lose. then we are left shaking our head wondering why we can't get a handle on this and make money. Has anyone ever wondered if our W.V. about trading keeps us in the loser universe? Well something to think about and chew on..... We say "good luck trading" or "happy trading." Most of us rarely seem to encounter the former and by far most of us never encounter the later.
Hindsight is always 20/20. The problem is that the market often moves against you even after you average down. Why? BECAUSE YOU GOT THE DIRECTION WRONG. If you're smart, you'd get the hell out by then. But no, you keep adding more to the losing trade. But it doesn't matter because you'll never tell about it--certainly not here for everyone to judge. Well, I won't say "good luck". Just don't stick your head too deep in the sand.
...then you average again. These are not random moves; they're calculated; for example, here is a "doubling" cost-averaging strat: 1. Entry: 100 shares long @ $10 = $1000 total 2. Price moves against you down to $9. 3. 1st Cost average: - Double. Buy another 100 shares @ $9 = $900 total - Total shares 200 - Total position now $1900, break-even at $9.50/share 4. Price moves against you down to $8 - 2nd cost average (double again): 200 shares @ $8 = 1600 - Total shares 400 - Total position now $3500 - Break-even is now $8.75 With this strat it's very important not to go balls-deep right up front. You have to leave room for cost-averaging. You can even go in very light up front and do a more aggressive 3x or more averaging scheme. See how it "latches" onto the price? When it moves for you, you're pretty much right on top of it.
What happens if it keeps going down? Down to $7...then $6...then $5? When do you call it quits? I say this because I've been there are done that. Hoping for a miracle is the single biggest sin of trading.
Diversify. Have a bunch of these going at once. Yes, out of ten trades, one will go down down down and stay flat, but there will also be one which rockets up and shatters your break-even. Generally, most will break even at some, and you'll come out ahead. Shorts tend to move much faster than longs, so your cost-averages on shorts will be much quicker. Up like an escalator, down like an elevator Also steer clear of albatross stocks--those that have a limited upside. In today's market, like brick-and-mortar bookstores, retail, etc. Then we get to the fun part: cost-averaging up!!! Ride that wave, baby!!! SIT TIGHT!
Post a chart with your annotations and entry if you want relevant and actionable feedback. Most likely you do not have the distinctions to understand the difference between a retrace and reversal of sentiment in relation to your trading timeframe.
Go to my journal. You will see some trades there on averaging down to see how I do it if you are interested. But you probably aren’t interested as your mind seems to be made up about the matter. I may post trades made today later. I actually took one showing “how not to scalp intraday” and took it on purpose as a teaching concept. I scaled in as price moved IN my favor. Well ...thats what the gurus say to do ROFLMAO. It doesn’t work so well with scalping. It can with investing. Or multi-day swing trades. Listen, in intraday trading especially when scalping 1 to 8 points there is a difference in getting the direction wrong and getting an early entry followed by some adverse entries. I trade with a premise or logical reason for making the trade in the FIRST PLACE based upon contexts, larger and immediate, and price patterns. I have a stop at the point where I think my premise is wrong. I will average down up to or near that point. If it gets breached. Then yes I am out. The direction is wrong. So, if I get stopped out I will then double or triple up and go in the correct direction and get my loss back quickly and usually soon in a handsome profit very soon. See, I can get the direction right but an early entry. So adding to the losing EARLY entry: 1) it allows to get at least SOME POSITION ON from the get go, even if no averaging down opportunity presents itself after the original entry. Even if it is a bit early at least I am in, albeit with a smaller position and not my larger desired position size. Yes, I could just put a full position size on to start with, at one wack. However, I know that I am trading in a band of 40% to 60% probability. That means that at the moment on ANY first entry there is a good size chance I will see some adversity before I am out with a profit, regardless of how well the setup entry appears to be. So, I can TAKE ADVANTAGE of that momentary adversity by averaging down. Playing the markets is not so much a precision thing but more a probability thing coupled with flexibility. That is why all the guru’s who spout super high probability precise setups are full of BS. But that is what the novice wants to believe. It is TOTAL BS. 2) keeps me IN THE TRADE on a little adversity. I’m not getting whipsawed. I am building a viable position based on market logic for the session. 3) as I add to the losing position it lowers the break even point in ADDITION to making price movement BACK to profit actually a LOT LESS. 4) It allows me to keep getting in ON A GOOD trade, at CHEAPER prices as price goes against me. Thus I am building a position incrementally, in adversity, as long as my original premise for getting in the trade is still intact 5) It tends to render a HIGH win rate. That is a real confidence booster. 6) it allows me to COMPOUND previous profits made in the same session.