More of an "I'm wrong" than a stop. 1. Be good at picking direction and get in when your setup dictates. 2a. If it goes your way add to position on dips and add trailing SL. 2b. If it goes against you add unit only after it turns back in your favor (but still down) 3. If it continues against you then you're wrong and get out. Have a max pain level set. I tighten stops the more units I have on. Doing this turned my trading around. I was getting chopped out constantly but my overall directional pick was correct. So i reduced my initial size and add units strategically. This cannot be done with the mentality of "it will come back"...honestly if you struggle to cut when you know you should then you will get clapped eventually no matter what. Everyone has to find their own way...this method might be murder for a lot of people but it works for me In intraday only futures.
Personally I have had success with both, not averaging down and averaging down/up on losses until the trend turned around and I reaped the big reward. So the answer to whether you should average down/up on losses or not is just like everything else: it depends. If you don't have a conviction of what's going to happen in the future, then it's best to just stop-loss and wait to fight another day. But if you really believe in the direction the security is going eventually and what's happening is transient and you are willing to take the risk, then by all means average down/up to accumulate all the positions that you want for the big turn-around to reap the big reward. But with every big reward, there is also big risk. The biggest risk with average down/up is if you happen to be wrong that the security is not going the direction that you had in mind, then you will end up with HUGE losses with all of the positions that you accumulated in the wrong direction. And I have experienced that too. It's NOT pretty.