Your description is unclear; your set-up seems short-term (non-investment) biased, and possibly going long at 'local' bottoms, and "adding to" these positions, unless it continues downward .3%-.5%. The thing is, if you've put on 3 positions, and the thing continues down another 0.3333%, your net liq. would drop as if a single position had dropped 1.00% -- would that be a reasonable SL point for you? If yes, then you're being consistent w/r/t a fixed dollar loss, and "Yay, team!" If you'd put on 5 positions, would you drop the SL distance to 0.20%? Yes? Yes? Well, there you go. FWIW, people would be less riled if you had used the phrase "averaging-in" or "averaging-out" -- they comprehend taking a stake in something over time, as opposed to "averaging-down" to solve a trade issue: that tends to be a recipe for disaster, as (everyone?) has noted. So, if this is consistent with your already-thought-out investment plan, then Good On Ya. But if this is a way to respond to an unexpected market move on a single trade, then "Run, Billy! Runnnnnn!"
Jajaja...there are a lot of truisms around averaging down. It's not that simle tho. If you trade a market that is mean reverting, you HAVE to average down. Anti Martingale MM in markets like vol or certain spreads is the sure way to ruin. If you average down your short position in a low floating penny stock...good luck, buddy So the correct answer is as always: depends...
I average down on all timeframes, took my 15 years to figure out how, and I never ever recommend to anyone to do so as I know most unwilling to test as I do. The most risk is on intra-day trading, cause from 30 minutes and higher I hedge all positions, much much less risk. For intraday you absolutely require to have loses under 4%, this is not to say you are winning 96% on original entries, you are basically aiming for breakeven signals on original entry, so think in terms of entry being the "mean", as price goes away you adding on waiting for the spring back, and HFT's actually do me a favor as most only going for small profits, but turns into complex system having to use elements of speed of price in seconds and slopes of price and must be completed in so much time. Jim Rogers said it best long ago on long term trading, he said he generally gets in early 2 years early, so in a way I get in early. But there are times where I get 2-5 ticks and no ave down entry's. But being a scalper first is different than being a day trader, I do have runners, but 0-4 a day work out well being runners, today being a day where having 10% of position is actually making more than few ticks. My very worst days in my life been when I get 3 losing trades in a row, I use to add on 8 levels of same size, and it take me 2-3 months to recover, now cause I am shifting funds to more swinging stocks and options trading, I ave down or add on 4 levels, and in automation loses don't ruin my day. Accumulate enough in one's 401k for lifetime, equity curve a way to keep score. Over long haul I do well by doing so, but unless you have beyond expert skills, you will end up bankrupt. My testing is 15 years of tick data for intraday and 25-50 years for longer term, most of that can be broken down into tick data/one/five minutes as well. I know I do overkill, but I like stats, want to know how worst can it get and always knowing this be exceeded. It be best if you take a long walk and forget averaging down, learn to add with the trade.
Well I disagree with most traders on this. It can be profitable but has to be done in the right context. In a range adding long in bottom third can be a profitable tactic. Adding more as it moves against me then waiting for a reversal back up towards the middle or top of the range.
Ok actually it's not averaging down it's like having a bigger stop loss , since I am predicting a reversal in near term. So until trend reverse I add to my position , but it's not like I am adding position forever , it's max 4 times then on that 4th position 8 have a strict stop loss , and if price goes below that I am out of trade. With loss . But if I am right then probably I have bigger profit.
I have stoploss it's just a bigger stop loss like 4-5% but until stock moves 5% against me . I am adding to my position , so that if I am right I have more profit , and I have more room for my strategy to play out.
T That's exactly what I am trying to do . So if there is any news I am out . If it goes against me like 5% I am out , and also since I have added to my position when it moved against me , my average loss is around 2.5-3%.
i will add if i am trading reversion to the mean up to three re-entries. if i am adding to a trend i will only look for one more additional re-entry. if you know your system well it can more than double your profitability from a base model that is just fair.