The other day I chatted with a dude on #daytraders, he made 72 trades this year on MSFT, for 1.5pts each, NO losing trades. His big secret, of course, is to hold on and average down if he was wrong, there was one time he averaged in his maximum buying power of 10 lots, and couldnt trade anymore... Better lucky than good, MSFT came back up, he is now out of hybernation. I guess this strategy could work under certain circumstances.. he already made 100+ points this year on the stock, even if MSFT goes to 0, he is still in the money for the year. Not my cup of tea though... I rarely risk more than $0.25 on a trade.
As Zboy said, it is all good until that one trade gets you. I recently took the Tony Oz trading seminar. He told us some horror stories about the bad trading he has done over his career and the true risk that is present when you get away with it. Your #daytrader buddy can still go bust on MSFT. All it has to do is probably go down 40% when he averages down ... He would learn how to spell margin calls in his sleep. You simply cannot confuse luck with good trding. Bill
Luck is when preparation meets opportunity.I think it is always good to hear new ideas, and counter ideas. Averaging out is something I never thought of, sounds like a good idea with the stocks I follow.
Just be careful Swoop. There is a cliche in the trading world that says "professionals average up, amateurs average down". It means that most successful traders add to their position as the trade moves in their favor, whereas most unsuccessful traders add to their position as it goes against them, trying to lower their breakeven cost. When I started, I was one of those "average downers" and was too proud to admit to bad trades. I managed to get out of most of my bad trades with a profit or break even eventually, but there were a couple that almost wiped me out that never came back and I've never averaged down since.
zboy - amen I will never average down again. Did that a couple years ago and it cost me dearly. Regards
It depends on what type of trader you are. If you are a breakout trader, you don't average down. I used to take my position, if it dropped a quarter, i'd buy 40% more. If it dropped another quarter i would be out. If im swinging like I do now, I buy 500, It drops a dime, I buy a k, It drops another dime, I buy 2500. I use a variety of indicators so that I know im at the bottom. I will never get the low print, but I know when im very close. For that reason, I'll continue to average until the situation changes. I don't just buy for the purpose of buying. You can average down and continue to average down as long as you have a plan. My stop then isn't any particular number, but instead when my reason for buying stops existing, or if I loose too much that it destroys my concentration in other trades (that has only happened 3 times to me)
MR_f, I made the same mistake at least twice, or was it three ...four ...five times I agree with zboy's quote. Professionals average up, amatures average down, unless you are a specialist or a market maker Bill