just daytrade these 'instrument' for futures just daytrade or trade momentum but not much momentum and untradeable sometimes daytrading is less stressfull than taking a position long or short. momentum trading is a lot easier than these options or complex hedging crap. or these pairs trading or option strategies.. at the end of the day it's the ROI or ROC that matters. most traders don't make money or dont make enough or they can make money doing something else so they quit trading..that is capitalism. capital will go where they can make the most money.
I want to insert a note here about averaging down or scaling in if you can’t stomach the terminology of averaging down. WHY DOES AVERAGING DOWN WORK? (Contrary to most traders beliefs) In a bear trend (BO, channel tight or broad, or even a one bar trend that has a pB) if the pb stays below 2/3 of the height of the previous move (sell off) then the probability is that the bear trend will resume. If it goes above 2/3 then 50/50 it may resume (go lower) or reverse (go higher). However, the higher probability for resumption of the bear trend is when the pb doesn’t retrace more than 50%. Forget Fib numbers. They have nothing to do with market moves even though they can sometimes appear to. However a 50% pb is rooted in our psychology as humans. It is almost like getting something at half price of the present market value (think move). Chances are you will be able to sell the item for a profit. Or sell it and cover for a profit. The number .500 is rooted in our bargaining psychology even if we don’t realize it. So lets look a a bear channel. Since bullish and bearish institutions are both active in broad channels (that is precisely why channels form) what are they doing? In a broad bear channels the bearish institutions are taking profits at new lows and selling PB’s from those new lows and averaging down in the PB’s as they are taking place, while the bullish institutions are buying new lows and averaging down as it goes lower then selling in the PB’s that follow thus taking profits while trying to push price back to the BO point of the previous bear move in order to take profits. Once they push price back as far as they can in the PB they will then take profits on DT’s or sideways moves as the PB ends. They may BE on their first entry or make a little on it and make money on their subsequent entries. See at the bottom bear are buying to take profits. Bulls are buying and averaging down positioning themselves for making profits in the coming PB. ALL this buying at the new lows is precisely what forms the PB and DB’s. Bulls will then try and push the Pb to the BO point of the previous bear move. Then they sell. What are the bearish institutions doing during the PB or near the end of it? They are of course selling to make the bear channel resume. So bears selling. Bulls selling, taking profits, at the peak of the PB and this selling is what makes DT’s ...pauses and prices start back south. All that selling! Reverse this for broad bull channels. Think through it. This is why averaging down works. Now in a broad bear channel is it safer the join the bearish institutions or the bullish institution? What about in broad bull channels. What is safer? Always remember, in broad channels both sides are very active. It depends on one’s account size and risk level as to what side they will join. If both institutions bulls and bears, were not active in bear channels, then the channels would not form. Thus pay attention to new lows and DB’s and PB’s with DT’s and especially pay attention to any gap between the PB high and the BO point of the previous move south i.e. the bearish move before the present PB. If that gap holds and DT’s form then PB may well be ending. If it plows through the gap, closing it, and keeps going then likely a reversal is happening OR price is morphing from a broad bear bear channel into a sideways range. Compare all this above to strong BO’s and spikes. In the latter, one side is pushing hard and winning on subsequent bars. You may want to print this out and study it. Then maybe practice it on a sim. To average down I like to employ the tactic within certain contexts. For instance, in bear channels I prefer my averaging down to be in the top 1/2 or 1/3 of the channel. And I prefer to not employ averaging down in the bottom 1/2 of bear channels. Although sometimes I will if feeling real giddy and in a risk on mood. Now in sideways RANGES I will average in on both sides. One more word about bear channels. I look at them as bull flags (on a larger TF) with a likely eventual BO north so when averaging in on the top side I keep that in mind and if my averaged down position gets caught in a successful BO (a BO with FT) I am dumping it then doubling up and going in the BO direction thus getting my loss back in a much smaller move and often get a good profit too. Again, just think through this stuff and reverse the process in a broad bull channel. In a sideways move i.e. A RANGE the BO has about a 50% chance it can happen in either direction (the longer the range goes on after 20 bars) but the larger context can skew that in favor to one side or the other and the pressure shown by the individual bars within the range itself can tilt it, some, to one side or the other, in terms of the BO.
Oh it works! However, what's the reason for averaging? Well, with less liquid instruments you just have no other choice. But with something liquid? The only reason I can think of is one is "sure" of eventual direction but not sure of the timing. One thing you haven't mentioned is sizing. For averaging to be effective, one must be doubling (essentially) to keep the deficit reasonable. It's a slippery slope that's all. IMHO, it's developing a bad habit that newer traders should stay away from. Agree?
averaging down on a worthless stock that is about to go to zero is an example of never averaging down. cash on commodities if you buy and hold or quality companies and not leveraged accumulating and averaging DOWN... in accumulating shares you are trying to buy CHEAP and no sellers are selling. you are trying to buy on averaging down but no sellers. or not enough shares to make a position. or stake in the company, to buy shares you need to buy direct from the company or use an investment banker to contact the company to buy lots of shares at a certain price. known as direct investment.
I see it differently. A new trader gets obsessed with the perfect entry and tight stop. If you give yourself breathing room by preparing for some adverse movement and will scale into your max position size, it's easier on the emotions.
I respectfully disagree. Perfect/Precise entry requires skills. Averaging as price moves against you requires mean reversion - that is natural ebb and flow of the markets but not really a skill. I'm not saying that people who average down don't have skills, as you need to do it in the proper context - as volpri mentioned multiple times and practicing - but you end up trading with small initial size because you are factoring in possibility of averaging multiple times. That's the problem - you are small when it works for you, you are big as it's going against you. Then you hope for mean reversion to kick in. If it doesn't, you are in a very bad situation. Just my personal opinion on it. This is a good discussion to have I think. Don't meant to hijack the thread.
The key part of this is how often it ends up working out. If for NQ as an example, you wait a few extra seconds to go long, you might get ling at 9310. If you use a 5 point stop, and it dips to 9304 after entry, you're out. Your trade isn't wrong, especially if price holds above 9310, but you lost your money. Even a dip below 9300 might not mean going long was wrong. Now it's true that it might take off right after entry on a small position, but you will have many more wins if you scale in lower. The trick to figure out is if those extra wins overcome those times you have to bail on the full position with multiple scale-ins.
Averaging down is one tactic that can work if done in the right context and done correctly but also scaling in when price moves in ones favor can be a viable strategy (and I do it too) but it has it's downside also. You can get whipsawed when you have your largest position on if you mis-manage SL placement. With scaling in, when it moves in your favor, you re paying more for the product as opposed to getting in cheaper as in averaging down and you are giving up something in terms of the reward part of the equation and also in terms of the probability part of the equation and risk has to be bigger because of the inherent pressures in the market that play out over and over in the ES (for example) on a 5 minute chart. There are no perfect entries. There are only bull and bear pressures and one side wins on a bar or on several bars and then the other side wins on a bar or several bars. It is not so easy to be precise but one can take a position and add to it as the pressures play out. Managing a trade is much more important than entry. Context is more important than precise entry. And probability works in ones favor very often when averaging down (depending on the context) and by averaging down you can avoid missing a trade trying to get a precise entry. Plus if you at least get a position on and it quickly moves in your favor you at least have a position on when if you wait for a precise entry (which really doesn't exist) you may miss the trade entirely. Finally, averaging down if done right, can increase ones's win rate dramatically which at bare min is a psychological boost and often leads to big profits. For instance, here in the ES I did not trade all day (doing other things) but in the last hour took 3 trades. First one was long then covered a 1 point trade. Second one I went long then added then covered for just under 2 points profit. The third trade I shorted and made 1.5/points and made $250.00. The second was an average down position on the long side. I show this on a 5 min chart as it is easier to see. These things said I don't just advocate averaging down in just any situation and in every trade (although I do it quite often myself. I did it today). A trader needs to learn when it is appropriate to do it and develop the skill to be able to do it. And have a tactical escape when wrong (and that can happen occasionally). It other words, you got have in your mind what you are going to do with your averaged in position when the market does the opposite of what you thought it was gonna do.
First trade was a long entry near bottom of the range then waiting for a move towards center for 1 pt scalp. Second trade long near bottom of the range the added to that long as it moved against me. Exit with nearly a 2 point profit. Third trade was a short in upper half nearly upper 3rd of the range and covered for a 1.5 point profit. Context RANGE TRADING AND bullish slightly since open of RTH AND a Gap up open on RTH 5 min chart. Buying and selling pressures about equal (see the MA’s running in middle of range on 24 hour chart in my prev post and in this RTH’s chart here). Bulls and bears about equal. Look at this 5 min RTH chart. Same trades. Trend is slightly up all day. What are the odds of me getting stopped out on my averaged down trade? Odds actually favor I won’t. And I didn’t. Every time price goes down bulls push it back up. Every time price goes up bears push it back down. Can short and can go long is the context but a scalping context of 1 to 3 points using limit orders. It is a limit order market. Context is important especially when averaging down.