Why does nobody average down?

[Chartsy]

" cos Paul Tudor Jones said 'Losers add to losers' that's why"

i postedt this on another forum and have got some interesting response.

Why do traders think they know when a pullback will end, why do they try pin point the exact reversal?

Why not average down (actually double down) into the pullback itself?

'Your account gets wiped out if you're wrong once'
Actually that's wrong, calculated averaging down has a limit, i personally average down until i see the pullback as done, and i use a stop loss on all my orders which sums up to 2-3% of risk. Random averaging down is silly, as in buying at support, it cracks and you keep adding and adding and adding.
But i think it helps to accept we aren't perfect on entries, averaging down gives that fleixibility, plus you may catch winners which you wouldn't have caught had you tried to 'catch that pip' which is the reversal, rather than just 'ooh support it's going up BUY, resistance SELL '

 

[shadowninja]

I don't have a problem with it... it's like trading without stops. There are two types of people who do this and also employ average down techniques: those who are really good traders and those who are really bad traders. Personally, I'm neither so do neither.

 

[Splitlink]

I have serious problems with it, the main one being that I made a mistake in the first place. For me, I am happier cutting the trade and moving on.

If the trader really knows what he is doing would he, please, explain, why he made that mistake in the first place?

 

[FXTrend240]

I have serious problems with it, the main one being that I made a mistake in the first place. For me, I am happier cutting the trade and moving on.

If the trader really knows what he is doing would he, please, explain, why he made that mistake in the first place?

complete misunderstanding here. you seem to think that, right off the bat a 'mistake' is made.

Again, you're thinking of buying support, support cracking and adding more.
I'm thinking uptrend, looking overbought and due a pullback-setting buy limits every 100 or so pips down- where is the mistake? i have stop losses ON the average down trades...so i know when i'm wrong

 

[Splitlink]

complete misunderstanding here. you seem to think that, right off the bat a 'mistake' is made.

Again, you're thinking of buying support, support cracking and adding more.
I'm thinking uptrend, looking overbought and due a pullback-setting buy limits every 100 or so pips down- where is the mistake? i have stop losses ON the average down trades...so i know when i'm wrong

I meant to put a chart on but my dealer's site is down for maintenance so I'll try to put what I did into words.

"May21 0846 Sell FTR Stop 5047
Stopped -10

0922 sell FTR 5049 Stop 5059
Stopped 0924 -10

1022 Sell FTR

1030 Sell FTR 5070 Stop -10 away
and I closed at 1300 at 4992
+88"

BTW, I only trade mornings

The times may be out a bit because I worked on orders but my argument is that I did not know 100% that the price would come back--it could have gone up and up. I was, almost, sure that it would go down so I was persistent with my shorting orders and by getting out earlier I made up my 20 points loss quicker.

I can't understand what it is that makes adding to losses justifiable.

 

[FXTrend240]

i place the same stop loss on all trades; you have done so in a random way which doesn't make any sense.

 

[FXTrend240]

try doing this on hourly forex GBPUSD for example: 50 and 200 ema cross up, then diverge waaay apart as price rallies higher, now you're thinking 'damn needs to pullback to the 50 or whatever'. what normally happens is you place a buy limit all at support or somewhere like that, price creeps down and could just rally back up. By averaging into the trade, say instead of 14 lots it's 2 4 8 , 3 orders- your entry doesn't have to be perfect and as long as trend resumes you win.

Works on stocks exceptionally well too

 

[wackypete2]

Averaging down (also called scaling in) is a useful technique. In volatile markets you generally need to use wider stops. If your stop would be larger than you are comfortable with then enter with 1/2 of your normal position and place stop. If prices moves about 1/2 way to your stop and your setup still looks valid then enter the 2nd half position. You've averaged down into a full position (scaled in).

There are pros and cons with this as some have stated here. Just as with any other tool in the trader's arsenal, if you know how to manage your money and your risk then averaging down can work for you.

Peter

 

[Splitlink]

i place the same stop loss on all trades; you have done so in a random way which doesn't make any sense.

Why random? It may be random to you but it was not to me. I had a very clear idea that the market was going to turn and it made sense to me to short persistently. If I had been wrong I would have lost on the morning's trading. It would not have been the firat time but I would have kept my losses to known limits.

I could have had a 50 point stop on the trade from the start but then I would have made less profits and, if I had got stopped I would have lost the 50, then.

 

[montmorencyt2w]

Averaging down while over-leveraged is certainly bad for an account's health.

 

[Chartsy]

Averaging down while over-leveraged is certainly bad for an account's health.

explain your statement, if i cap risk on my average down trades althogether, how is it worse than a hard stop hard entry method?

 

[MrMiyagi]

I only ever average down with non-margined shares that I like fundamentally. If you're right about the companies long term prospects you're getting good value averaging down.. Of course the company could go to zilch, but much less hairy than when you're leveraged to the gills and subject to getting wiped out by noise.

 

[wackypete2]

He didn't say it was worse, just bad. If you are overleveraged it's just bad, period. Your stoploss is not necessarily your maxium risk. Slippage and gapping will extend your loss beyond what you initially thought you were risking. On an overleveraged account..YIKES, you could be in severe pain. Also, averaging down does not mean you are overleveraged.

Peter

 

[Chartsy]

i average down in a trend until i see the pullback has gone too far (that's where my stop loss is).
besides this fundamentals are most important aspect of trading forex,especially swingin'

 

[Chartsy]

He didn't say it was worse, just bad. If you are overleveraged it's just bad, period. Your stoploss is not necessarily your maxium risk. Slippage and gapping will extend your loss beyond what you initially thought you were risking. On an overleveraged account..YIKES, you could be in severe pain. Also, averaging down does not mean you are overleveraged.

Peter

if you're leveraged anyway then that could happen...? yes overleveraging is bad yes, but gap ups happen . and if you actually think about this if i had buy limits not yet hit and the market gapped way down they wouldn't have been filled....and if you were all in and it gapped past your stop then you're worse off

 

[Splitlink]

explain your statement, if i cap risk on my average down trades althogether, how is it worse than a hard stop hard entry method?

I think that this is a case of everyone having his own opinion on things. Mine is that if I don't like the way my trade is going then I'm happier being out of it, instead of trying to add more and, possibly, making things worse.

My way, explained above, could have ended badly but I can't see how it could have ended worse, as my loss was known and I could have called it a day at any time.

To be honest, that is why I am not keen on Tom and Co's method of overnight swing trading, I prefer a guerrilla war rather than a prolonged one. I know that I am old and grumpy but I try to live another day.

 

[wackypete2]

and if you actually think about this if i had buy limits not yet hit and the market gapped way down they wouldn't have been filled.

Unless I am misunderstanding you this is an incorrect statement. If you are trading forex and price is 1.20, your buy limit is 1.10. If the market gaps down to .90 you will be filled at 1.10. Your broker will be happy to fill your limit at at your price!.


Just add, you seem to be very argumentative, even to those who mostly agree with you?

Peter

 

[kimo'sabby]

" cos Paul Tudor Jones said 'Losers add to losers' that's why"

i postedt this on another forum and have got some interesting response.

Why do traders think they know when a pullback will end, why do they try pin point the exact reversal?

Why not average down (actually double down) into the pullback itself?

'Your account gets wiped out if you're wrong once'
Actually that's wrong, calculated averaging down has a limit, i personally average down until i see the pullback as done, and i use a stop loss on all my orders which sums up to 2-3% of risk. Random averaging down is silly, as in buying at support, it cracks and you keep adding and adding and adding.
But i think it helps to accept we aren't perfect on entries, averaging down gives that fleixibility, plus you may catch winners which you wouldn't have caught had you tried to 'catch that pip' which is the reversal, rather than just 'ooh support it's going up BUY, resistance SELL '

If you intend on averaging a situation with a view to risking 2% over 5 trades, what happens if you get the first trade correct?

 

[wackypete2]

If you intend on averaging a situation with a view to risking 2% over 5 trades, what happens if you get the first trade correct?

You move on to the next opportunity.

Peter

 

[kimo'sabby]

You move on to the next opportunity.

Peter

. That's some target/exit you had to break even on potential risk with one of five trades!?