Averaging down experience

[Wysiwyg]

Buy up trending stocks at support level and place a stop loss below that support level?

 

[So_Cynical]

Buy up trending stocks at support level and place a stop loss below that support level?

That's something else, has no place in this thread.

 

[Wysiwyg]

I found this old thread after struggling with my average down addiction. Some great discussion and varied opinions. Things I will be focusing on initially

- better risk management - Set max loss % and stick to it. (maybe 20% on spec stocks)
- better timing on entry - Research more thoroughly and don't get sucked in with the hype

Still learning but overcoming my own short comings is proving more difficult than first thought.

Cheers

You are on the wrong path if you think that is better risk management. Percent stop loss is a failed approach. If you want to overcome average down to greater loss addiction and the associated missed opportunity then choose the proven path of trading with the trend and give the average down denial game away.

 

[barney]

I found this old thread after struggling with my average down addiction. Some great discussion and varied opinions. Things I will be focusing on initially

- better risk management - Set max loss % and stick to it. (maybe 20% on spec stocks)
- better timing on entry - Research more thoroughly and don't get sucked in with the hype

Still learning but overcoming my own short comings is proving more difficult than first thought.

Cheers

Howdy Trav ….. Averaging down is not a problem within itself …. @skc above (post 161) put it in a nutshell.

Lots of traders dollar cost average their trades/entries to spread the volatility ….. Its when you do it and how much of your capital you do it with that determines whether its a mistake or not.

I nearly always accumulate positions, which is just a fancy way of saying I average down because I know I'm not clever enough to pick the best entry most of the time ….

Do you have any examples of trades where you have averaged down you could post up?

Discussing trades gone wrong with other traders can often be helpful ….. Cheers.

 

[barney]

You are on the wrong path if you think that is better risk management. Percent stop loss is a failed approach. If you want to overcome average down to greater loss addiction and the associated missed opportunity then choose the proven path of trading with the trend and give the average down denial game away.

There is some truth in what you say WYS ….. averaging down for the wrong reasons is a losing game …

I have no problem with averaging down trading Stocks but when I tried to be a Forex Lord, averaging down nearly always failed in the long run.

 

[Wysiwyg]

There is some truth in what you say WYS ….. averaging down for the wrong reasons is a losing game …

I have no problem with averaging down trading Stocks but when I tried to be a Forex Lord, averaging down nearly always failed in the long run.

Hey Barney. I notice you joined this forum near the same time as me. Surely we both have amassed great experiences since then. For a value investor, averaging in or building a position on well established companies that have been unjustifiably oversold and time is not an issue (investors live 50 years longer than traders ). Trading stocks anti trend is something I suggest only experienced traders do. Trading anti trend and averaging down is something I suggest only experienced traders do. Having a two or three stage entry for the whole quantity is something I do but brokerage costs for the year are higher. The cut off point remains the same for the full quantity. I love the reflection of traders in charts and I love an over sold stock.

It can be done but the right stocks and the right position size and the right stop loss and the right time are of importance for traders.

 

[barney]

Hey Barney. I notice you joined this forum near the same time as me. Surely we both have amassed great experiences since then.

It can be done but the right stocks and the right position size and the right stop loss and the right time are of importance for traders.

Totally agree WYS ….

Averaging down in the wrong hands can get ugly …. and even in the right hands it doesn't always work out. It can have its advantages if used correctly of course, but any method of trading falls into that category.

PS We have been around a while haven't we …. Cheers M8.

 

[tech/a]

Why would you average down on the premise it will go up!
Why not average up? If that’s the way it’s moving why wouldn’t you want more of it!

If it’s NOT GOING UP wait until it does THEN invest.
If you can’t tell when that is or your worried about missing a few cents
Learn what to look for.
If you get it wrong —- you’ve got it wrong —- putting more money into wrong
In the hope it will become right ——-???

The most stupid form of trade management I know of.

 

[Trav.]

Thanks for all the responses.

Example of my latest average down experience. No rhyme or reason just chasing my money. Event that started the down trend was a delay with the PFS. Got sucked in to buy on the expectation of news. Now stuck in a holding pattern until PFS is released later in the year.

Trades & Chart

13 Jul 2018 Buy 0.135
20 Jun 2018 Buy 0.175
19 Jun 2018 Buy 0.175
28 May 2018 Buy 0.225




Thanks again for your time.

 

[Trav.]

I just wanted to add that I do average up when the opportunity arises,

NUH Trades.

22 May 2018 Buy 0.082
16 Apr 2018 Buy 0.095
13 Apr 2018 Sell 0.100 (SL triggered)
10 Apr 2018 Buy 0.110
15 Mar 2018 Buy 0.099
06 Feb 2018 Buy 0.055
31 Jan 2018 Buy 0.063
24 Jan 2018 Buy 0.068
08 Jan 2018 Buy 0.068

Just need to find the balance when playing in the spec end of the asx.

 

[Country Lad]

......No rhyme or reason just chasing my money. Event that started the down trend was a delay with the PFS……….. Got sucked in to buy on the expectation of news.

Trav, as you can see from my post early in this thread, (https://tinyurl.com/yc8ks4nk),
I haven’t ever averaged down as I think it should be renamed as “doubling down on a mistake”.

You probably just need to change your mindset as a start, to one of buying a share only when there is a positive reason to do so. That may be because of a positive trend, chart showing positive moves, strong momentum in the price/trading, positive news or any other reason that gives a high probability of the share price increasing.

Your buy of 28 May was just a tad early (only by about .5 or 1 cent) as it was not yet a breakout. Buying because of anticipation of a PFS is risky because it may not be positive news, a delayed PFS is even more risky as the reason for the delay may not be good.

So, my comment is – buy for a positive reason. Not while the price is going down and you are buying when others are selling. There is always a reason for the drop and that is never positive. That should help change the current mindset.

 

[barney]

Why would you average down on the premise it will go up!
Why not average up? If that’s the way it’s moving why wouldn’t you want more of it!

If it’s NOT GOING UP wait until it does THEN invest.
If you can’t tell when that is or your worried about missing a few cents
Learn what to look for.
If you get it wrong —- you’ve got it wrong —- putting more money into wrong
In the hope it will become right ——-???

The most stupid form of trade management I know of.

@Trav. …. Just to clarify a couple of things on my interpretation of "averaging down"

Tech's post above, if you are trading using technical analysis, is 100% correct ….. buying a distressed Spec stock because its getting cheaper is generally a recipe for a larger loss and certainly not what I am advocating.

If you incorporate Fundamental analysis into your trading decisions, which I assume you are, you might approach a given trade with a different plan …. In saying that, sensible T/A still needs to be adhered to.

Averaging down in its traditional interpretation has issues when trading Specs, however averaging down, or up for that matter, by accumulation of a Stock around a pre determined price range/value area is perfectly rational to me … Hope that makes sense. If not, ask and I'll elaborate

As long as sensible position sizing and money management are adhered to and a healthy respect for price action, you wont go too far wrong whether trading momentum breakouts or accumulation plays Cheers.

 

[tech/a]

So
Your suggesting that stock xxx has a bargain price value of $18
So it’s currently trading at $12
You buy any time it trades lower say $12,10,8 etc averaging in.
Or am I missing something

 

[barney]

So
Your suggesting that stock xxx has a bargain price value of $18
So it’s currently trading at $12
You buy any time it trades lower say $12,10,8 etc averaging in.
Or am I missing something

Tech ….

Trying to explain things on a Forum is often open to misinterpretation etc as I'm sure you have experienced.

I'm happy to continue a conversation on this topic as I think it could be interesting, but I first need to make sure, regarding my last post, that you understand exactly what my last post (which I took a long time deliberating over to try and make the wording clear) was trying to say …

1) Firstly, I was referring to Spec Stocks ….

2) I told Trav that averaging down in the traditional sense on Spec Stocks is generally a poor decision.

3) Adding Fundamental analysis to a trade makes it potentially different to a pure T/A trade

4) Accumulation around a perceived value area/Range is actually determined by technical analysis of the Chart in question

So basically, I'm not advocating "averaging down" willy nilly … I'm talking about

1) Reading a chart that is showing signs of potential (T/A)

2) Researching the Fundamental aspects of the Company in question (F/A)

3) Assessing whether I see an under valued Stock

4) Trade the Stock according to its perceived value and price action


Points 1 and 2 are interchangeable in an "accumulation" strategy whereas a purely T/A trading strategy is 1 and only 1

PS If I take a position in a Spec Company I see as undervalued yet the SP drops below an obvious trading range or a Fundamental report/announcement comes out to extinguish trader enthusiasm, I'm not going to average down/accumulate more of that because the value area/sentiment has changed ….

The trade can be invalidated by either T/A or F/A in an accumulation strategy … its discretionary, not cut and dry.

Hope that all makes it clearer … Cheers.

 

[tech/a]

Nope.
Averaging down to me is

Buying at Price X
Price drops a lot so I buy more to
Average my price at a lower price.
I keep doing this in the hope that IF price
Rises I can recoup and or profit as the
Figure need to do this is much lower than
My original failed buy.

Coating the process by any number of conditions
Doesn’t negate what your doing
Spec or larger cap.

Friend of mine who invested $40000 in a stock only to see it collapse
70 % did exactly that finally investing $ 78000.
Still kept going lower so he stopped trading for a living
18 mths later his broker ( in the day of full service broker )
Called to tell him price had spiked and he was in profit.
He pocketed $230k profit.

15 yrs later the guy is fully broke and lives off welfare.

It’s a very common dumb thing that traders do.
How lucky do you feel??

 

[barney]

Nope.
Averaging down to me is

Buying at Price X
Price drops a lot so I buy more to
Average my price at a lower price.

Thanks for the reply Tech …..

Firstly ... sad story on your M8 …… and probably far too common.

You may have read one of the Posts I wrote where I described/admitted to basically losing $100K early in my trading …. of borrowed money!! Lol …. (funny now …. not really of course)

I often think in hindsight … if that trade that I inadvertently risked the house on (literally) had actually come off, I would have likely gone on to lose even more because I had no idea what I was actually doing at the time .... so the large loss may have actually helped! Scary but true

Just to confirm … When you say "Price drops a lot" …. for an accumulation strategy, that would signal a failed trade/cut your losses etc ….. ie Chart signals still have to be respected …

A poor averaging down strategy would disregard the chart/truth and buy more .... that is where the downside can become exponential and where it differs from accumulation.

I know I've convinced you to become an accumulator now haven't I … Okay maybe not

 

[tech/a]

I accumulate but only on the way up
I don’t have time or inclination to sit in
A trade and wait!

 

[barney]

I accumulate but only on the way up
I don’t have time or inclination to sit in
A trade and wait!

Totally understand Tech …. You are running a large business …. Time is limited … you have employees (my sympathies!) Cheers.

 

[tech/a]

It’s not that
It’s age

 

[barney]

It’s not that
It’s age

You're still only 45 aren't you … that's about what you were when I joined ASF