You're absolutely right, there is technically no "risk" in your trading. You've broken the laws of physics.... look guys, a trader trading risk free!!! WOOOHOOO! L3TS ALL GO GOT THE MONNIE TREEEE HAHUHUAHUAHAUHAUEH!!12! Ok, now that I got that out of the way, since you so easily thwarted my first important questions but seemingly missed the point, I guess there's only one thing for you to consider. Say SPY went down to 105, you bought more, and it kept going down. You buy more? Say it keeps going down... catch my drift? What do you do?
Buy more. Use appropriate money management and leverage so that you never hit a point where you go "shit, I can't buy anymore" and then SPY drops another 30 points. I'm pretty sure that SPY won't go to 0 without retracing for some profit first. If it does, US money would be worthless anyway so it wouldn't matter that I've blown my account. And if it takes while to retrace to profit, that's no big deal, either. I don't mind collecting dividends in the meantime. Besides, I'm pretty frugal as it is. I don't need to cash out on a regular basis. Ramen and a 10 year old Honda Civic. Besides, it beats all the other people chasing the market and losing money continuously. Look how many haters in this thread told me I'm wrong or whatever. They're still trying to figure out how to make nonsense like MACD or RSI work. I have PMs from people telling me I'm wrong and I need to use MA crossovers or whatever. I just say hey, if MA crossovers are working for you, then by all means keep using them. This is likely how I will continue to trade unless I learn how to predict direction, at which point I won't need to average down or hedge anymore.
Most TA is garbage yes. Making money has really little to do with predicting anything. Moving averages do have their uses. I can and have made really good money trading just a simple trend line break. Your idea reminds me of this guy who had a journal and he was heavily shorting the VIX as a hedge. It worked great, until the vix shot up... If you're happy living on Ramen and driving a Honda Civic, what's the point in trading....? You could afford that by working at Mc Donalds. I guess you just want to save yourself the time of making big macs. People are constant losers because of psychological issues which often leads to poor risk managment. It's not so much that they are wrong by 'chasing the market (method).' I don't care how you trade or if you make money. Just encouraging thought. It seems like you might be overlooking the the issue that would occur with this strategy in a very strong trend. You'd average down until you couldn't anymore, and unless you have unlimited capital, you could run out of averaging power. I don't have all your figures of course...
I've seen great calls like that after the fact. In my experience it hasn't been consistent enough to be profitable. But if you can make it work, keep doing it. Averaging into a short position is different. lol, are you trolling? Just because your income goes up doesn't mean your expenses should go up. I live in a nice place in a safe area. I don't drive much, why should I have an expensive car? Who am I trying to impress? You? My goal is to increase my net worth, not have expensive stuff. My end goal is to have a high enough net worth that I can live off of passive investments without ever touching the principal. So I go buy an $80k car. I'm now set back at least $80k if I pay cash, and more if I make interest payments over time. How is that helping anything if my current car is working just fine? Because I look cooler in an $80k car when I actually drive somewhere 2 or 3 times a month? lol. People are constant losers because they don't have a profitable system. Psychology comes into play sometimes, but not nearly as much as people like to say (usually people who can't admit that their system isn't profitable even with flawless execution). I made a lot of money during the last "very strong (down) trend" in 2008. I was hedging my bets that the US economy would not crash. I was right. Look how many threads there were "OMG, SELL! THE MARKET IS CRUMBLING! YOU ARE DUMB IF YOU AVERAGE INTO THIS!" I bought all the way down (in 2x weighted ETFs) and would've continued to buy more. Look how many people stopped out their positions for losers, whose account sizes fell by 50% or more. I more than doubled my net worth. Could I have been wrong? Sure. But I was willing to take the risk. Even back in August of this year during a big down day everyone started freaking out. I made a thread telling people to relax and only one person replied (because everyone else was busy posting in threads about how the economy is collapsing!). Here's the thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=225023 I know everyone has his or her own style of trading, though. I say to each his own
I appreciate this method because IMO it's trading the only edge that the everyday non technical/genius/mathematician/HFT/algorithmic trader can rely on - that the markets over time trend UP. It's quite simple, and you know that there are powerful human forces working in the background to make that edge work in one's favor. Assuming you aren't a conspiracy theorist of course. It's not for everyone. But for someone who doesn't need their account for everyday living expenses, has a relatively unlimited time frame, and doesn't want to spend any time managing the account, I can't think of a better approach. Not that it matters because it's not my journal, but I only have 2 questions about the strategy: 1) are entry/exits arbitrary or is there a structured plan dictating every move? 2) why bother with hedges at all when this strategy is clearly bullish (at least to my understanding)...strikes me that best hedge is already in place by holding cash and waiting for lower prices to average down If you are wondering why I'm asking questions at all it's because I'm constantly re-evaluating what I'm doing and this type of strategy has been on my mind for awhile.