I agreed that averaging down can work with scalping intraday but definitely NOT overnight. However, one has to be careful if a supertrend day comes along when the market goes 100-200 pts in one direction. If you are not in that same direction then you'll get run over. So one should definitely have an uncle point and get out.
I would never average down overnight. For me it is only a scalping strategy. I will do it in what you call a supertrend but will average down for moves in the direction of the trend. For instance, in strong bear trend...several big bear bars in sequence. Big gaps between the close of a bar and the close of the previous bar. I will short and add on any pb and average down. Even on a single big bear bar price will usually go down then back up the bar often before closing near the low of the bar just previousley made on the same bar. On trips back up, on the same bar I will add so if price climbs back up 50% of the bar range or even 75% I am adding to my short. If the ride back up the bar then turns into a pb on the next bar I will be adding. Especially, if there is an immediate strong bear trend as mentioned and the larger context also supports more bearish moves.
The problem I see with averaging down for most traders is getting run over in break outs where you are strapped into the roller coaster. Granted a rare few traders may have learned how to make averaging down work for them, but most will get clobbered. NQ short - Euro open
I only add to winners most of the time; rare exceptions are if it gaps down & bounces or is at a key support level (pd low or whole number)... in general i don't add to underwater positions; better to stop out on way down & rebuy if bounces later... lesson learned the hard way... as i say: "feed the winners, starve the losers"
Doesn't work well for a scalper. Especially in a mean reversion instrument on short time frames. Ones account will get chewed up by SL’s. If swing trading bigger moves then yes adding to winners can work as a viable strategy.
I averaged down MGC. Then it broke out and held on for a long time and got out at a small loss instead of a big loss. Then of course, it went all the way back and some. I would have made profit had I just held on. But that's the WRONG LESSON. The right lesson to learn is that I started averaging down too soon. I should have waited for the extremes before averaging in.
Fundamentals generally determine the final direction but TA shows the path it takes to get there. I never look at fundamentals. Period. World events....many are even unknowable events yet to happen can affect fundamentals. I only care about what the market has been doing and is presently doing now to WHEREVER it is going. I am a trader not an investor. I don’t care where it is going on fundamentals. Up or down. Doesn’t matter to me what the forecast is. I am only interested in the twists and turns as it gets there. And there will be many and they ALL will show in in the charts. Patterns are one thing. The PA context in which a pattern occurs affect the probability of a pattern being successful. For instance, in a small pullback bull trend where the market is grinding up mostly staying above the 20 ema I will ignore any and every wedge top. Why? They will most likely fail and I will get stopped out over and over shorting them on what looks like a good entry signal bar, thinking the next one has to succeed. These are actually some of the strongest trends although visually they don’t look like it.
right volpri re not as good for scalping.... no time & sl shakeouts... how i scale is for daytrading long 15-20 minute runs like how i traded TVIX friday during its run up; i put in sequence of 3-4 buy-stop orders to fill on the way up every .30 - .60, then tighten up trailing stops i can't even spell 'fundamentals', lol -- I'm 100% price action & TA; most stocks i trade (other than faves like MU AMD JD TWTR CGC etc) I don't even know the company name; eg its just a top % gainer 9:35 so i buy if setup is solid.
Ok to remind us. You see this. Would you prefer going long or short at this point? What do you think? Lets look at the same chart marked up abit to see if we can identify the pressures. In the chart. That is, who has the upper hand, the bulls or the bears? If you had to make a decision to go for a measured move up (green) and SL was at the bottom of the big bar or short at the top of the big bar for a MM down with SL a MM distance up; what would you do? Taking into account the WHOLE picture what would appear to be the MOST LIKELY OUTCOME? MM up or a MM down? What would you feel more comfortable doing shorting the top of the large bar or going long at the top of the large bar? Now in this scenario the R:R =1:1 SAME FOR BULLS OR BEARS. There are three variables in any trade: Risk, Profit Target, Probability. You can set your Risk. You can even set you PT. The one variable that is harder to arrive at is probability. You have to look at the immediate and larger context to arrive at that best guess figure. So, if you look at all this together where do you think the higher probability is? Bullish or bearish PA after the big bar? Here is another thing to contemplate. A climax. So, what is a climax in trading? EVERY BO is a climax. A climax in trading is an extreme move. An accelerated move. That move can be up or down. Three things can happen. 1) it can lead to a pause in the trend (can be exhaustion and price go into a range) 2) it can lead to a reversal of the trend (Exhaustion Gap that can simply become a climatic reversal in the opposite direction of the climax bar) 3) it can lead to a continuation of the trend. (A Measuring Gap that takes the size of the BO and extrapolates that same distance <<in this case>> upwards, the same distance.) Which one of the three that is most likely to happen depends much on the context; immediate and larger. So, if you were gonna throw some money at this after seeing the big bar (climax bar) would you prefer to go long or go short as you look at the immediate context and the larger context? Lets define the context: Immediate context: Gap up open, the opening gap has held ABOVE the BO point. The climax bar is the largest bar in 77 bars, tight micro bear channel (yellow ..possible bull flag), price at the moment above both MA’s, climax bar is a BO of the last 10 bars, it is big bar closing near it’s high and it is a bull bar. Larger context: Gap open above an aprox 67 bar range (yellow). Last leg in the range is a bull channel, the channel has consecutive bull bars, larger bull bars than bear bars in the channel, 15 bull bars..13 bear bars, price breaks above both MA’s and subsequent pb’s are not going below the MA’s. So assign a probability % number between 0 and 100. For it to go up. For it to go down. What do you think? Take your best guess at probability but base it upon what you “see” on the chart. And please no random market BS. Markets ALWAYS move because of pressures at play. They can move ...sideways..up...or down. And which way they move is ALWAYS BECAUSE of pressures. It is imperative to make an attempt at identifying the pressures at play. For instance you might say “I think there is 70% chance it will go down a MM thus leaving a 30% chance it will go up.” “Or you might say I think it has a 55% chance of going up thus leaving a 45% chance it will go down.” Another trend channel line could be drawn across the top of the last bull leg in the range below and extrapolated on up towards and above the high of the climax bar but to keep down on cluttering up the chart any more I didn’t draw it in. There is enough info on the pressures at play to make a decision without drawing it in. Will await any responses. This is not a trick nor am I trying to trap anyone. I am just attempting to show how we as traders can read PA and make trade decisions.If you are right or wrong it doesn’t matter. It is just an exercise that is all. Maybe some good will cone from it? It certainly isn’t to prove who is right or wrong. Like I said only an exercise. Just use your judgement and look at the obvious.