Averaging.

[Paul71]

Here's one for the theorists and book readers and the bone-head regurgitators.


Q) Is Averaging a good practice?


Please, share with us your thoughts and feelings about averaging.

 

[foredog]

Adding to a winning position..yes

Adding to a losing position..no

 

[Paul71]

Adding to a winning position..yes

Adding to a losing position..no

That seems to be the general view, adding to losers is a big no-no. Why though?

 

[foredog]

If it's a loser you're wrong. Cut it and wait for a better trade.

Doubling up is avoiding the fact that you're in a bad trade.

At what point do you stop averaging and when will that loss wipe you out?

 

[Paul71]

If it's a loser you're wrong. Cut it and wait for a better trade.

Doubling up is avoiding the fact that you're in a bad trade.

At what point do you stop averaging and when will that loss wipe you out?

Ok, so as soon as the trade goes against you, your target price immediately becomes invalid?

 

[counter_violent]

Here's one for the theorists and book readers and the bone-head regurgitators.


Q) Is Averaging a good practice?


Please, share with us your thoughts and feelings about averaging.

Perfectly valid strategy...if you believe in mean reversion.....although adding at equal intervals would be a big mistake.....price moves in parabolas...and so should add points.

and deffo no martingale

Dynamic grid over price action

 

[foredog]

Ok, so as soon as the trade goes against you, your target price immediately becomes invalid?

In my world, yes! I'd only add to a position oing in the right direction.

If you're buying something to hold longterm then a small tick down would not affect your target.


But if you then bought more and it ran down to your stoploss then you've lost nearly double what you risked in the first place.

 

[megamuel]

All the books say averaging down is a big no no (well, all the ones I have read), but personally I wouldn't not do something just beacuse someone told me I shouldn't. Although I don't average down nor do I intend to, I don't see why it couldn't become a part of a strategy. Say if someone risks 2% capital per trade, they could first enter risking 1% and if the trade initially went against them they could later enter with the other 1% so long as the reason for entering that trade still remains. You just have to be aware of the risks I think and you have to be sure that your reason for entering the trade still remains and you are not just trying to make back losses...

Sam.

 

[arabianights]

If it was part of your plan to begin with then it's a valid strategy. The warnings against averaging are because it's very tempting to add to a losing position - and I think this is what most averagers who need to be reading warnings are doing, in fact.

You also obviously still need money management... and have to accept that when you lose you're going to lose big compared to your wins so you should be prepared to face that as well...

 

[foredog]

Each to their own.

Sam you are dead right about mananging the risk.

I just found that when i was averaging down that was when i did ££££.

I'd say there's a higher probability of a trade making a profit if you average up rather than down and its all probabilities in this game!

No one can say who's right or wrong, it's what suits you.

But I feel it's easier to cut a position going down quickly than see it down, average see it fall some more then eventually having to admit it's not going your way.

 

[Paul71]

All the books say averaging down is a big no no (well, all the ones I have read), but personally I wouldn't not do something just beacuse someone told me I shouldn't. Although I don't average down nor do I intend to, I don't see why it couldn't become a part of a strategy. Say if someone risks 2% capital per trade, they could first enter risking 1% and if the trade initially went against them they could later enter with the other 1% so long as the reason for entering that trade still remains. You just have to be aware of the risks I think and you have to be sure that your reason for entering the trade still remains and you are not just trying to make back losses...

Sam.

Would you say this could also apply to the martingalers?

 

[Paul71]

Perfectly valid strategy...if you believe in mean reversion.....although adding at equal intervals would be a big mistake.....price moves in parabolas...and so should add points.

and deffo no martingale

Dynamic grid over price action

Why not martingale? Would you average down using just PA?

 

[counter_violent]

Why not martingale? Would you average down using just PA?

There is no need of martingale if you utilize a dynamic grid....patience is a virtue.

 

[timsk]

Perfectly valid strategy...if you believe in mean reversion.....

This works 9/10 and was the strategy I used in the ETX Capital 'Beat the Broker Comp' and managed to turn £20k into £150k in one day. Great fun, however, I blew up my account at least three times before I achieved that and had to hit the 'reset' button to return to a starting balance of £20k. Sadly, in real life there's no reset button and the risk of disaster is huge. The reason being that every once in a while you get caught offside by a runaway trend and the losses mount up exponentially. However, averaging into a position that has corresponding stops which, if hit, collectively only result in a loss of x% of equity - strikes me as being fine and has definite advantages. I've explained my thinking in greater detail in post #5 of this thread:
http://www.trade2win.com/boards/first-steps/50724-rediculas.html
Tim.

 

[Paul71]

There is no need of martingale if you utilize a dynamic grid....patience is a virtue.

Personally, i'd look for volume exhausting on the higher TFs. I agree with what you say about not hitting it at regular intervals though, but doesn't that almost equate to martingaling in?:?:

 

[Paul71]

This works 9/10 and was the strategy I used in the ETX Capital 'Beat the Broker Comp' and managed to turn £20k into £150k in one day. Great fun, however, I blew up my account at least three times before I achieved that and had to hit the 'reset' button to return to a starting balance of £20k. Sadly, in real life there's no reset button and the risk of disaster is huge. The reason being that every once in a while you get caught offside by a runaway trend and the losses mount up exponentially. However, averaging into a position that has corresponding stops which, if hit, collectively only result in a loss of x% of equity - strikes me as being fine and has definite advantages. I've explained my thinking in greater detail in post #5 of this thread:
http://www.trade2win.com/boards/first-steps/50724-rediculas.html
Tim.

It can work, it does work, when used appropriately. You mention advantages, i also think it has it's definite advantages. Would you agree that it can take some of the pressure out of 'nailing' the trade first time around? In some ways it's just as bad/good as 'big' stops (whatever they are)

 

[megamuel]

Would you say this could also apply to the martingalers?

Martingayle is a bit different because your doubling your stake everytime. Which must make it very hard to stick to only trading 1% or 2% of your capital which most traders follow. I actually think Martingayle is a great strategy if you had enough money to cover all potential losses, but if you if you had enough money to cover all potential losses you probably wouldn't need to trade with it. Esentially it increases your risk. Also depends on how you use it. For example, you could say that for every 500 points the FTSE100 goes down I'll enter another up bet doubling my stakes. Say its at 4000 now, can only go down by 500 points 8 times potentially, so as long as you had enough capital to double up 8 times then you could do it.... but thats not gonna get you great profits. Didn't you live in Thailand last week Paul71???

Sam.

 

[counter_violent]

Personally, i'd look for volume exhausting on the higher TFs. I agree with what you say about not hitting it at regular intervals though, but doesn't that almost equate to martingaling in?:?:

Well not really...if for example the add intervals are doubled each time...so 0....50...100...200....400 but the stake stays the same so 1..1..1..1..1 each subsequent level is harder to reach...which is the whole point really.

Just an idea to be explored...how many wins at level 1 then 2 then 3 etc
In theory...every other trade wins at level 1
Sounds like an excersise for a mathmagician to me ...lol

Also...you could introduce another dynamic...a hedge of some sort perhaps

 

[Paul71]

Martingayle is a bit different because your doubling your stake everytime. Which must make it very hard to stick to only trading 1% or 2% of your capital which most traders follow. I actually think Martingayle is a great strategy if you had enough money to cover all potential losses, but if you if you had enough money to cover all potential losses you probably wouldn't need to trade with it. Esentially it increases your risk. Also depends on how you use it. For example, you could say that for every 500 points the FTSE100 goes down I'll enter another up bet doubling my stakes. Say its at 4000 now, can only go down by 500 points 8 times potentially, so as long as you had enough capital to double up 8 times then you could do it.... but thats not gonna get you great profits. Didn't you live in Thailand last week Paul71???

Sam.

Who said that they always throw a few into the market initially just to see which way the wind is blowing, i'm sure it was Buffet? I wonder if Buffet is a secret martingaler?



By the way, i wasn't in Thailand last week, wish i was though.

 

[Paul71]

Also...you could introduce another dynamic...a hedge of some sort perhaps

Now you're trying to confuse me