martingale betting vs scaling in vs average down

Discussion in 'Strategy Development' started by dlee1221, Apr 21, 2009.

  1. dlee1221


    Is there any day trader out there that uses some type of martingale system sucessfully?
    Is there any profitable trader out there that scales into a position (averages down) and feels this is a legitimate trading style? I'm a rookie day trader and I've been cutting my losses, only to see the trade turn my way. I'm beginning to feel that averaging down is the way to go, but it seems like everyone I talk to says "never add to losers"
  2. 1) As a rookie, do not add on to losers.
    2) As a rookie, you may have trouble closing out a losing position in the event of a large and rapid loss.
    3) As you get more experienced, you can get to a point where you can add on to a losing position once, and only once, with a very tight stop on the second position that also offsets the original position.
    4) Adding to a loser, many many times, at progressively worse levels, puts you in a position where you can be destroyed. You have to avoid that always. :cool:
  3. depends on the system.. as a rookie do not do it.. youll will obliterate your account very quickly.

    system wise is depends on what u use and if the trade sequences are independent from each other or not by a %.
  4. bagg


    All of the methods you mention can work but only in skilled hands. There are many ways to skin a cat - find yours. I do have to agree with the other posters though that averaging down in the early stages of your career will almost certainly be fatal.
  5. rosy2


    yes. this is market making.
  6. gaj


    if you feel there's a problem, you might need to do some of the following:

    -> wider stop with smaller size.
    -> better entries.
    -> better (or different) setups.
    -> be careful with positions when there has already been many levels of a big move.

    what above ppl say is correct; you can average down but it requires skill and lots of discipline, neither of which is there for someone who is new.
  7. gaj


  8. the1


    Averaging has its place. Averaging against a strong trend is suicide, averaging into a drop like we had yesterday is an extremely effective trading plan. Scaling, averaging, martingaling, and stops all have their place. None is any worse than the other but you can't use one method on <b>all</b> markets.
  9. Honestly, if the market is choppy then averaging down in a position works well.

    But you have to be selective when you double down... if you're trading JPM, add to your position when it is 25 cents against you rather than just 10 cents.

    Also, you need to trade small lots in order to average down. Can't have 400 shares of JPM and keep adding 400 shares three other times if you're account is just $50,000.

    The biggest reason I personally don't like averaging down is there can be one fluke trade where you just blow-up... You keep adding to a long position, and the market just dives down after your last lot.... You could loss a lot relative to your initial profit goal. So risk-reward doesn't align. You're also basically hoping for a market reversal in order for the strategy to work.

    That being said, I've know one guy that always "scales-in", I call it "adding to a loser four times", and it works for him. A lot depends on the market... If it's trending overwhelmingly in one direction, don't add! If it's choppy, then go for it. Don't be greedy with the profit though, scale out nicely too.
  10. #10     Apr 25, 2009