A couple of questions

Calinor

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I imagine things are much more complicated than how I am looking at it at 5:40 in the morning and I hope someone will enlighten me on two simple questions.

If averaging down when a trade is going against you spells disaster, is averaging up when a trade is in profit a good decision and something that will lead to huge profits?

If taking partial profits early is often detrimental to overall risk reward (hence expectancy) would it best to take partial losses as a trade moves against you?
 
Huge rewards, maybe not, but adding to winning positions is a sound principal that has stood the test of time.
Livermore was quite a fan of this, as has been many others.
 
This all depends on the individuals money management, risk profile, skill at trading, psychology etc

Averaging up could lead to disaster for one man and a fortune for another.
 
Demo it. If you're sh1t at it throw it in the bin.

But you could be sh1t at trading based on price action around support and resistance levels in the beginning. That doesn't mean that the principle is unsound. I'm interested in the principle of it. You could be crap at trading with the trend, but it still might be the correct thing to do once you know how to do it correctly.

How many scale out of a position when they are losing? Do you find it useful?
 
If averaging down when a trade is going against you spells disaster, is averaging up when a trade is in profit a good decision and something that will lead to huge profits?

If taking partial profits early is often detrimental to overall risk reward (hence expectancy) would it best to take partial losses as a trade moves against you?

both can be used effectively as part of a complete strategy,

averaging down: if you are poor at timing, you can split your overall trade and increment it into the market. if you are say, going to trade 3% of your account, you can trade 3 x 1% to build a 'position' although averaging down in the immediate short term will prove a loser, the net effect over the longer term could be a blended price to provide a winner. pay attention to your risk and stop loss distance to manage your overall risk per transaction. regardless if you are wrong about the trade decision, averaging down will not save you.

averaging up : let your winners run, minimize your losses, its sort of an inverse pricinple to the one i have mentioned above, adding to your position as the market proves you right is very effective and can lead to greater returns in comparison to your overall losses, but if you have the trade direction wrong, its poop. trading 3% by 3 X 1% may not give you a better return than hitting everything in one go, as your average price will be closer to the markets action.

taking partial profits and losses : if you are being proved right why get out, if you are being proved wrong, get out........

ultimately all this falls into 'tactics' and how you plan your trade.
 
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If averaging down when a trade is going against you spells disaster, is averaging up when a trade is in profit a good decision and something that will lead to huge profits?

The reason why it is better is because it can be riskless relative to your account. If you have £1000 of profit and decide to increase your position with a stop which, if hit, would leave you break even but if not would give you more leverage to the upside - making your risk reward ratio, essentially, infinite.

In practice, it's one of the hardest things to do correctly as the human brain sees implied profit as realised profit (when it isn't). Therefore, it's easier to mess up if you don't have the discipline. I would never recommend this type of trading to people who are starting out as they will not have yet mastered their feelings for stopping out, never mind handling and running profits.

If taking partial profits early is often detrimental to overall risk reward (hence expectancy) would it best to take partial losses as a trade moves against you?

Never thought of this before, so let's try to make an example up:

Say you are long something from 100. Your stop is set at 10 (so, if it goes to 90, you stop out). You could get out half at 95 and the other half at 85 for the same, net result. Why would this be useful? Well, if the market went to 87 before running to 130, you would make a small profit. However, if it only went to 92 or 91, then you have lost some leverage to offset the losses you made and have less leverage for obtaining profits.

Personally, no, I think you would be far worse of taking partial losses as a trade moves against you. I wouldn't do it unless loaded heavily in a market that had poor elasticity.
 
But you could be sh1t at trading based on price action around support and resistance levels in the beginning. That doesn't mean that the principle is unsound. I'm interested in the principle of it. You could be crap at trading with the trend, but it still might be the correct thing to do once you know how to do it correctly.

How many scale out of a position when they are losing? Do you find it useful?

Well I think that the whole principle relies on your trading skills being good. For example, you are long 2 lots of gilt futures at 110.00 and they rally to 110.20, and so you add another 2 lots. Your average price is now 110.10. But what do you do if the contract starts tanking and the price is now 109.50. And that will effectively maximise losses. Same obviously goes for when you are short.
So before you even consider adding to winning positions, you need to understand why the market is moving the way in which it is and where you believe it will go, and your confidence levels need to be more than 50%
 
I don't see why you should need to scale out of losers. The position of your stop loss should accommodate how much you are willing to risk and all volatility. If you need to scale out of losses then as far as I'm concerned you're either trading too many lots for your account and are not comfortable with it or you you got the trade wrong altogether whether it be incorrect analysis, timing, whatever.

I'm no guru though so maybe that's me being ignorant to some sort of widely used strategy
 
hi there

If averaging down when a trade is going against you spells disaster, is averaging up when a trade is in profit a good decision and something that will lead to huge profits?

Averaging down and up ...hmm...may not help u for huge profits,,,,,yea...it might help you to a certain extent to gain profits...but if things go the other way round....its a disaster again.
 
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