Why does nobody average down?

[montmorencyt2w]

the way i 'pyramid' is to use the same stop loss but use multiple targets for each division, say on the 10% ill aim for the whole shabang....with the 30 less...etc

If I understand you correctly, what you are doing is more like "proper" pyramiding, whreas what I am doing probably isn't

That doesn't bother me too much; I'm open to experimenting with different ways. But for now I just want to see if I can make this work effectively.

Trader_Dante has written some interesting stuff about this kind of thing.
I haven't seen too many other people write about it though, which is why I sit up and take notice when somebody does.


With "proper" pyramiding, so I believe, you start with a wide base, as it were, and it gets narrower as you go along. That probably makes sense if you think that the further you go, the more likely you are that it's going to turn round on you.

ISTR that with TD's, it's not a true pyramid because it's not getting narrower. It's more like a tower block. As it progresses, he moves his stop, and then adds the same number of positions. There is probably more to it than I am remembering though.

Mine is more like a narrow tower

 

[Chartsy]

If I understand you correctly, what you are doing is more like "proper" pyramiding, whreas what I am doing probably isn't

That doesn't bother me too much; I'm open to experimenting with different ways. But for now I just want to see if I can make this work effectively.

Trader_Dante has written some interesting stuff about this kind of thing.
I haven't seen too many other people write about it though, which is why I sit up and take notice when somebody does.


With "proper" pyramiding, so I believe, you start with a wide base, as it were, and it gets narrower as you go along. That probably makes sense if you think that the further you go, the more likely you are that it's going to turn round on you.

ISTR that with TD's, it's not a true pyramid because it's not getting narrower. It's more like a tower block. As it progresses, he moves his stop, and then adds the same number of positions. There is probably more to it than I am remembering though.

Mine is more like a narrow tower

mines a pyramid on a narrow stump

 

[hustlerscreed]

funny but i dont see how it works as to the fact you only add more to your loss. point. getting greedy...
i feel a successfull trader should seek a proper return from one good trade. take this on for thought /if you feel the trade you take is good for so many pips just play with a proper lot size and SL . cause figure if added trades only equal to one proper lot size then all you win is that.. ex. i take a buy and look to a gain for x amount all i need is one trade with x lots, then theres no needs to push so many buttoms to close a trade.. fact is all i see with pyramid trading is fear in your trading basicly your saying i dont trust this trade with this amount so im going to see if i get lucky... lossing is lossing winning is winning its either your place the correct trade or you dont...

 

[oildaytrader]

Pyramiding does not work due to price action and excess volatility in mixed markets.Move to b/e gets you out of more good trades in intra day trading.In p/a price returns to the price high or low to knock-out stops/additional entries with low stops

Later additional trades are less profitable than earlier trades, and it is less likely your stop will be hit and more likely move to b/e will be hit.

Is there any statical evidence to disprove any of these opinions?

 

[tomorton]

I think we're splitting hairs.

Averaging down = you entered a trade for a good reason but, following the inexorable laws of probability, this is one of those that goes against the more probable direction. There is no harm in recognising that and crystallising your loss so you can release the capital (and your attention) for use in another equally good trade. You should already know that, no matter how many times you get stopped out at your acceptable risk level, your system will restore your profit over a year. No need to get 'involved' with a loser.

Investors v's traders = An investor is someone who buys an asset intending to live on its dividends. It follows that the buying price and selling price are irrelevant, as this asset generates an income (e.g. dividend) and will never be sold. Eventually, the asset goes into the deceased investor's estate. The only time an investor should sell is if the income stream from the asset irretrievably disappears. It follows that the investor may find himself 'accidentally' averaging down, when enlarging an investment, but not in order to restore the sale price of the asset to break-even, simply in order to enlarge his income. But if you buy shares with the intent of selling them, regardless of time frame, you're a trader.

Profit is the objective. Averaging down is an inefficient and speculative detour along this road.

 

[montmorencyt2w]

funny but i dont see how it works as to the fact you only add more to your loss. point. getting greedy...
i feel a successfull trader should seek a proper return from one good trade. take this on for thought /if you feel the trade you take is good for so many pips just play with a proper lot size and SL . cause figure if added trades only equal to one proper lot size then all you win is that.. ex. i take a buy and look to a gain for x amount all i need is one trade with x lots, then theres no needs to push so many buttoms to close a trade.. fact is all i see with pyramid trading is fear in your trading basicly your saying i dont trust this trade with this amount so im going to see if i get lucky... lossing is lossing winning is winning its either your place the correct trade or you dont...

I think I see why you are saying that, but it doesn't have to be so. I am "quoting" Trader_Dante from memory here which is a bit dangerous as it's a while since I read the relavant threads, but the kind of thing he is talking about is when you get in on a really long-running trend (e.g. months, like EUR/USD Dec 2009-June 2010). You have no idea when it is going to end. When it has moved a significant distance, you move your stop(s), release margin, and then re-invest that in a new position, so you can grow your position and not necessarily risk much more capital (depending on exactly how your account works with margining). I think he talks about "getting all your account on one trade", but this isn't quite what it sounds. You aren't actually risking 100% of your account on one bet. That would be suicide of course. But if the trend goes on for long enough and you pyramid on enough you get the equivalent of all of your account on the trade. At least I think that's what he meant. Look out for a thread called something like "How to win really big". I think there were a couple of related threads. I will have a search around a bit later on. TD if you read this, apologies if I have misrepresented you.

Note that I am not arguing for averaging down at this point.
I have argued for it in the past, and I think there can be times when it is justified, but to be used with extreme caution. Not for newbies. And oldies can get caught out with it I suspect. I'm only talking about adding to _winning_ positions here.

 

[Chartsy]

funny but i dont see how it works as to the fact you only add more to your loss. point. getting greedy...
i feel a successfull trader should seek a proper return from one good trade. take this on for thought /if you feel the trade you take is good for so many pips just play with a proper lot size and SL . cause figure if added trades only equal to one proper lot size then all you win is that.. ex. i take a buy and look to a gain for x amount all i need is one trade with x lots, then theres no needs to push so many buttoms to close a trade.. fact is all i see with pyramid trading is fear in your trading basicly your saying i dont trust this trade with this amount so im going to see if i get lucky... lossing is lossing winning is winning its either your place the correct trade or you dont...

averaging down is not adding to a loser, that's just what's been fed to you in the books and other common wisdom, you read that and believed it, your choice.
you calling all those successful prop traders greedy and undisciplined? ask dante and he'll tell you how those that averaged at futex were very disiplined indeed. anyway averaging isn't necessary of course, john carter does trading without it, you should never discourage something that you don't really get

 

[trader_dante]

TD if you read this, apologies if I have misrepresented you.

Not at all, mont

I think you summed it up pretty well.

You want to be using 100% of your margin in a trend (as long as you're not against it)

 

[Splitlink]

Pyramiding does not work due to price action and excess volatility in mixed markets.Move to b/e gets you out of more good trades in intra day trading.In p/a price returns to the price high or low to knock-out stops/additional entries with low stops

Later additional trades are less profitable than earlier trades, and it is less likely your stop will be hit and more likely move to b/e will be hit.

Is there any statical evidence to disprove any of these opinions?

I don't do pyramiding but your second sentence is on the nail. I have come to the conclusion that if I move my stop to B/E I might as well give my money away! That is because, IMO, the marketmakers manipulate short term trading. Long term trading is more difficult and expensive to manipulate. I have been, for many years, a morning trader, closing every day before 1330. I am now trying to extend my morning trades to, hopefully, something that I can hold for a few days. Nine times out of ten it does not happen and I come home at night to witness a wasted trade that I might as well have closed at a profit instead of putting the stop at B/E.

I think that when the market moves in a certain direction, short term, the initial profits made must be taken or the stop loss must be a good distance away. This risk must be taken because the market will correct. Morning and afternoon sessions are a case in point. Time and time again what happens in the morning will be recovered in the afternoon, even though, once the stops have been taken out, the market will reverse again and end the day higher, or lower ( but in the direction of the morning trading period). This is exasperating, but a fact of life.

My advice to a trader who wants to hold overnight is to accept the risk and keep the stop where it was in the first place, but not move it to B/E.

 

[Chartsy]

i'm starting to wonder whether pyramiding is even necessary for my style of trading- trend and pullback.
I was thinking instead of waiting for a pullback that mightn't happen where i think it will, i should start averaging in earlier, and before the trade , like always, average in to a level over which the trend is undesirable, i used to discourage this as you have many small gains, that are less than had you been all in, but the point is you , or i, wouldn't be all in there, so all gains made from averaging in like this are gains which wouldn't have otherwise been made, im talking if a stock is uptrending and i think it'll fall 3% for a pullback, i start averaging in at 0.5%...so on and place a stop...say 5% away

 

[montmorencyt2w]

Not at all, mont

I think you summed it up pretty well.

You want to be using 100% of your margin in a trend (as long as you're not against it)

Thank you Sir!
(I will revisit the relevant threads to check out the finer detail ).

 

[montmorencyt2w]

I don't do pyramiding but your second sentence is on the nail. I have come to the conclusion that if I move my stop to B/E I might as well give my money away! That is because, IMO, the marketmakers manipulate short term trading. Long term trading is more difficult and expensive to manipulate. I have been, for many years, a morning trader, closing every day before 1330. I am now trying to extend my morning trades to, hopefully, something that I can hold for a few days. Nine times out of ten it does not happen and I come home at night to witness a wasted trade that I might as well have closed at a profit instead of putting the stop at B/E.

I think that when the market moves in a certain direction, short term, the initial profits made must be taken or the stop loss must be a good distance away. This risk must be taken because the market will correct. Morning and afternoon sessions are a case in point. Time and time again what happens in the morning will be recovered in the afternoon, even though, once the stops have been taken out, the market will reverse again and end the day higher, or lower ( but in the direction of the morning trading period). This is exasperating, but a fact of life.

My advice to a trader who wants to hold overnight is to accept the risk and keep the stop where it was in the first place, but not move it to B/E.

I suspect you are both (or all three) right, and it never seemed like a good idea, partly from observation of the chart, and partly from other people's war stories. But I rarely actually tried it for myself, so this is my time for experimenting, and at some point, comparing identical trades, one where you move it, and the other where you don't.

 

[Splitlink]

I suspect you are both (or all three) right, and it never seemed like a good idea, partly from observation of the chart, and partly from other people's war stories. But I rarely actually tried it for myself, so this is my time for experimenting, and at some point, comparing identical trades, one where you move it, and the other where you don't.

Unfotunately,for me, I never seem to find examples until I actually trade them!

 

[RockyRacoon]

I don't do pyramiding but your second sentence is on the nail. I have come to the conclusion that if I move my stop to B/E I might as well give my money away! That is because, IMO, the marketmakers manipulate short term trading. Long term trading is more difficult and expensive to manipulate. I have been, for many years, a morning trader, closing every day before 1330. I am now trying to extend my morning trades to, hopefully, something that I can hold for a few days. Nine times out of ten it does not happen and I come home at night to witness a wasted trade that I might as well have closed at a profit instead of putting the stop at B/E.

I think that when the market moves in a certain direction, short term, the initial profits made must be taken or the stop loss must be a good distance away. This risk must be taken because the market will correct. Morning and afternoon sessions are a case in point. Time and time again what happens in the morning will be recovered in the afternoon, even though, once the stops have been taken out, the market will reverse again and end the day higher, or lower ( but in the direction of the morning trading period). This is exasperating, but a fact of life.

My advice to a trader who wants to hold overnight is to accept the risk and keep the stop where it was in the first place, but not move it to B/E.

Ok I have no idea what your time frame is but regardless, forget about time frame, at least for now.

Your stop should be based on your risk tolerance as well as your entry. IOW, a great entry means you can have an extremely tight stop whereas a poor entry means you should either bail and cut your loss relatively quick or accept a very wide stop los and potentially a sizable loss......this is a very simple and universal rule regardless of your trading time frame.

When it comes to scaling into a trade, when you enter the trade, you should plan on being right - but early. Hence, you will enter initially with a relatively small position.

If you enter the trade confident that you hit an awesome entry and choose to bet the farm, best of luck to you as that takes a long time to get that good and most will never achieve that level of trading.

You should also have a pretty good idea of your exit before you even enter the trade - regardless of your time frame.

I think trading out of boredom and/or the "need" to make money via hitting home runs abolishes more traders than anything else.

Market makers certainly can and do manipulate the markets, but all that means is, to a certain extent, you must learn to think and react as one of them.

Plenty of money can be made in leveraged markets such as Forex - and one only needs to scrape up the crumbs left behind - IMHO, that is the easiest money for small guys like us.

 

[Splitlink]

Ok I have no idea what your time frame is but regardless, forget about time frame, at least for now.

Your stop should be based on your risk tolerance as well as your entry. IOW, a great entry means you can have an extremely tight stop whereas a poor entry means you should either bail and cut your loss relatively quick or accept a very wide stop los and potentially a sizable loss......this is a very simple and universal rule regardless of your trading time frame.

When it comes to scaling into a trade, when you enter the trade, you should plan on being right - but early. Hence, you will enter initially with a relatively small position.

If you enter the trade confident that you hit an awesome entry and choose to bet the farm, best of luck to you as that takes a long time to get that good and most will never achieve that level of trading.

You should also have a pretty good idea of your exit before you even enter the trade - regardless of your time frame.

I think trading out of boredom and/or the "need" to make money via hitting home runs abolishes more traders than anything else.

Market makers certainly can and do manipulate the markets, but all that means is, to a certain extent, you must learn to think and react as one of them.

Plenty of money can be made in leveraged markets such as Forex - and one only needs to scrape up the crumbs left behind - IMHO, that is the easiest money for small guys like us.

Thanks for your post.

My opinion of a trader who gets stopped out too many times at B/E is that he has got his entry technique right since the market comes back to that point, later, and takes the stops out. before resuming again. This is classic market technique!

So he can do one of two things, or both.

a) Not enter the first time, but put an order on so that he gets into the trade when the price comes back to take the stops out later. So his problem could be a matter of timing.

b) Place his stop loss well away from the entry position in the beginning.

But moving a stop to breakeven means that you go nowhere in a very long time.

 

[Chartsy]

bump!

 

[tar]

Surely this may work for sometime , but it doesnt work in the long run , the reason is : anyone can do it .

 

[Splitlink]

Surely this may work for sometime , but it doesnt work in the long run , the reason is : anyone can do it .

Are you commenting on my post? It is four years old, you know, and I reserve the right to change my opinion in that time!

I don't think that "anyone can do it" is a good enough reason, especially with trading.

 

[tar]

Are you commenting on my post? It is four years old, you know, and I reserve the right to change my opinion in that time!

I don't think that "anyone can do it" is a good enough reason, especially with trading.

Wasn't commenting on your post , i meant averaging down in general , the OP brought this up not me .
The "Anyone can do it" is definitely enough reason , we're talking about highly competitive markets here , there are no loop holes .

 

[counter_violent]

Well it is possible to do it, but it has to be highly structured. You have to cater for every eventuality, in advance, and also you have to use more than one instrument, because sometimes you have to play the other side of the move. If done properly, it's almost impossible to lose.