Stop loss and averaging down

This is a discussion on Stop loss and averaging down within the Trading Systems forums, part of the Methods category; I would like to hear from members what they think of averaging down. I know the perceived wisdom is NOT ...

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Old Mar 15, 2017, 10:24am   #1
 
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Stop loss and averaging down

I would like to hear from members what they think of averaging down.
I know the perceived wisdom is NOT to touch Martingale systems with a barge pole but the hard facts of trading may make it necessary.
As it seems necessary then I am experimenting with averaging down by:-
1 times
2 times
3 times
4 times
And then setting a standard stop loss to cover in case it all goes down the drain.

What do you think ?
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Old Mar 15, 2017, 11:17am   #2
 
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Ibut the hard facts of trading may make it necessary.
NEVER EVER EVER.

It's one of those techniques that works for weeks/months until it doesn't. And when it goes wrong you are back to square one having lost all of your profit accumulated over that period.

Don't go down that road - you'll be sorry. The market is not always random and can push on in a single direction far longer than you think is possible. If you are on the wrong side of that trade you'll lose your account trying to average the position down.
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Old Mar 15, 2017, 12:53pm   #3
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I only enter/exit on TA signals, not accrued gains/losses, so its basically a No from me.

However, there could be a rare situation where my first trade is losing but has not hit stop, and a new buy signal comes in from the chart. Its possible, and under that scenario I would be a buyer at a lower price of a new position of equivalent size in the same market. But its not really doubling down, I would treat them as separate entities.
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Old Mar 15, 2017, 1:02pm   #4
 
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Originally Posted by tomorton View Post
I only enter/exit on TA signals, not accrued gains/losses, so its basically a No from me.

However, there could be a rare situation where my first trade is losing but has not hit stop, and a new buy signal comes in from the chart. Its possible, and under that scenario I would be a buyer at a lower price of a new position of equivalent size in the same market. But its not really doubling down, I would treat them as separate entities.
Yes - nicely safe.
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Old Mar 15, 2017, 3:52pm   #5
 
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Originally Posted by Pat494 View Post
I would like to hear from members what they think of averaging down.
I know the perceived wisdom is NOT to touch Martingale systems with a barge pole but the hard facts of trading may make it necessary.
As it seems necessary then I am experimenting with averaging down by:-
1 times
2 times
3 times
4 times
And then setting a standard stop loss to cover in case it all goes down the drain.

What do you think ?
Go back over all your old trades and see what would have happened had you done the above. Then look at the evidence. Then draw a logical conclusion.

It all depends on your trading style and the length of period that you examine and the state of the markets – so there are quite a lot of variables there. I did this as an exercise with my trading some time ago (not from an averaging down point of view) but just to see what would have happened to trades that I thought it was best at the time to get out of. The one thing that came out of this which I wasn't really expecting was that there was a certain percentage of loss on any particular trade, beyond which I was more than likely not to gain anything by remaining with it. Now, any trade which reaches that loss percentage is now very suspect and in normal circumstances I will get out.

The good thing about doing post trade analysis (and any research for that matter) is that sometimes it throws up things that you weren't looking for or conclusions that you didn't expect.

My suggestion is to get out the spreadsheet and get calculating.
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Old Mar 15, 2017, 5:07pm   #6
Joined Feb 2002
Good suggestion sminicooper. I did a rough and ready look-back in December at my 2016 trades. There was a very clear division - if running loss stayed at less than 50% of initial risk, the position would probably not be stopped out within any sensible time period - it might make a small profit or a small loss but would not make a TP at the same distance from entry as the SL either - but if loss reached more than 50% of my risk, it would almost always go on to hit the stop-loss.
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Old Mar 20, 2017, 11:18pm   #7
Joined Jul 2010
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Originally Posted by Pat494 View Post
I would like to hear from members what they think of averaging down.
I know the perceived wisdom is NOT to touch Martingale systems with a barge pole but the hard facts of trading may make it necessary.
As it seems necessary then I am experimenting with averaging down by:-
1 times
2 times
3 times
4 times
And then setting a standard stop loss to cover in case it all goes down the drain.

What do you think ?
ive averaged down ..........9 times losing triple digits.now i allow myself 3 times.if i cant get it back and i am on the wrong side of the trade i look to get out at an opportune time.still might cost me double figures but not triple!
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Old Mar 21, 2017, 5:52am   #8
Joined Mar 2017
Did you only do one-way averaging down? I mean just buying at a lower price than your entry and wishing it will go up later? That's not the way institutions/funds do it. They average down and then resell the shares they've just bought at a price that is a bit above their latest entry, 1%-3% maybe, but lower (or higher, if they're lucky) than their first entry. It's more efficient, because you have not only a lower cost/share but also an extra amount of cash.
This only works when you have uptrending stocks. For downtrending stocks, the only best thing to do is to cut losses.
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