The problem with this is that idea is that they aren't separate. They are 100% correlated to each other, just because they are entered at different prices doesn't change anything. Your net exposure is increasing as price goes against you. You get a better average price BUT at the same time your NAV is losing value. Regards
You are still not getting it. Evaluate it as though you are doing 2 or 3 seperate trades. Correlation and money management are the integrating factors. All the simple opinions (often influenced by Van Tharp and missrepresentations of him) are just that "simple."
First, you don't add when the price "drops like a rock". Could you please identify the person who said you should? If not, then please stop making false arguments. Second, let's evaluate your scenario without scaling. If the market is strong and doesn't come in enough for your buy order to get hit, then you miss the trade. If it comes in lower and you do get hit with your bigger size, and then keeps going down, you have a loss on size. That seems to be a fair counter to your argument.
Okay fine, price "drifts" lower all the way to your stop. The point is that adds are being made as price drops. Hmmm, you make a good counter. My view is that scaling in should be done as price goes higher. Giving you the abilty to be right when you're trading size versus being wrong on only the first few lots. Either way I thik we're in agrement that you shouldn't use all you ammo on the first entry.
That's really the point to this discussion IMO. I scale both ways, in certain cases I scale down but I always scale on the way up. My initial entry is a sacrifice entry so to speak, I want to find out how much the market will move and what type of fluctuations I am going to experience. Sometimes I enter and the market moves against me to some support/resistance value that I was previously unaware of... I buy/sell more here and then set a really tight stop directly under that support. This situation is rare but it often will let me out with a B/E exit or a very small loss. Even more critical is scaling on the way up, I allow the initial entry to provide me with a level of confidence regarding the position, green means go all-in in certain cases. These are probably less than 10% of my trades but they outweigh my winners by a factor of 10-20. I do not think I would be very profitable without doing this given the types of setups I look for.