its one of the sure fire easiest ways to completely take yourself out. and not in one big hit either. i do it. but i can say this, its not meant for everyone. theres definitely a certain type of personality that is extremely suspect, where its not going to be a good fit in the long run.
Warren Buffet is not a trader. Never has been and never will be. Soros was a trader, but not in the capacity of what many traders are, or ever will be, on this site. We're talking MASSIVE position size in the case of Soros. Also, Soros was a macro trader I believe, so his approach wasn't purely technical regarding breaks above/below support/resistance to determine whether to exit an existing position. Either way, I think that you and most anyone else on this site is wrong when they use Warren Buffet or George Soros as a barometer for comparison. You should read Soro's book, The Alchemy of Finance. It's a great read and an interesting insight into his thinking about trading.
I am not one to piss on other people's strategies, but I just don't understand the logic of averaging down. You are always going to have your biggest size on when you have a loser, and on the trades where you enter and it shoots off in your direction for a big gain you are going to have your smallest size on. Someone please explain that logic to me. If I backtest a system and it says that X is the best price to enter with a 4 point stop, it will always be less profitable to scale in when you are halfway to your stop at (X-2). Otherwise, you would be better off entering your entire position at (X-2) and ignoring X altogether, right? I'm sure I'm missing something, but I'll stick with my all-in, all-out strategy I guess.
Too many words wasted on such a simple subject. You think price has bottomed (or topped) You enter with a probe trade. Price moves slightly against you. wtf are you supposed to do, let a BETTER price go because you are already in a position??? The business of piling on winners is what gets too much press imo. All you do is worsen your average entry price, and give back a lot more on a retracement. The notion of playing with the 'houses money' is imbecilic
"Based on your statement the only true trend traders would be those buying higher highs in uptrends or selling lower lows in downtrends." It is all a matter of your timeframe perspective. I absolutely love to buy new highs or sell new lows. For size. Because the odds that you bought the highest high or sold the lowest low are exceedingly small. Learn how to feed regularly on other people's pain and you will go far in this business.
I agree, these are the easiest trades of all. You're trading with the trend, you're entering where all the stops are located (both counter-trend protective stops and with-trend entry stops), stops become market orders when triggered and fuel the move, meaning even if it's a false breakout, you can exit with very little damage, and when it's the real deal, it's one of the best trading experiences you can have. I made a day's pay in 20 seconds today on a breakout trade, selling the low of the day after a significant move down had already transpired over the previous 2 hours. Anyone averaging down starting with the first strong selloff never saw green the rest of the day.
****The trick to averaging down is to apply it *only* during consolidated price action and to take the loss if the opposite end of the consolidation changes its characteristic of resistance to support and vice versa.*** That sums it up well. Averaging losers necessitates doubling down on future trades to get even on the first (and second, third, fourth...etc) when they go bad. The problem is that initial trade size - on winners, mind you - are kept incredibly small to accommodate bigger size later and stay under leverage caps. With a positive expectancy system, yea, I can see the benefits. But like NoDoji said, in a screaming one-way market, it gets real tough to buy enough pull backs to get even.
you learn to trade by getting in and out for small losses and small gains,....eventually you improve on when to get in and out,.....so you play longer term or larger moves,... getting in and out ...,changing your avg price,...hopefully for the better,.... when the market finally makes a move in your direction ,...you have a position on that will pay well,....everyone thinks of it as adding to losers or winners,...you dont just put on a size position and wait for it to come in,....the market doesnt work that way very often,....maybe 3 trend days a month,....so you adjust,... buying back ...,putting em out higher ...,raising your avg price and wait for the move,.... its like sailing ...,most of the time your tacking back and forth,...and sometimes the wind is at your back