Averaging Down for the win?

[havaiana]

Let me give a basic example of going against what is on every trading 'do not' rule list, averaging down.

On the left are examples of a pull back scenario, on the right a range trading scenario.
Averaging down (Bottom examples) Using stops (Top examples). GREEN=entry RED=exit

Obviously if they they go our way the result is the same, win. If we are wrong or timing off the examples in the picture can occur.

A large % of the time you can still catch a good trade if your timing is off and scratch/small win/small loss a trade if you are wrong



Obviously there are the times there is no bounce, so there has to be an uncle point. But i think i overall a good trader will make more averaging than stopping out.

I think if people tried this they would be surprised at the results. I have found that the winning piles up so much it more than makes up for the occasions when the daily stop is smoked

Would just like to add it would probably be better to use a position size much smaller than your usual position size and only average up to, or less than your normal position size

For example if you trade 4 contracts, you could change to average down up to 3 times: 1 + 1 + 2 = 4.

Also a great way to practice trading because you will find you are trying to pick the tops and bottoms on your exits as well as your entries. Instead of exiting because your trade has gone against you x ticks, you exit because you think you are coming to the end of the wave/turn.

Any thoughts?

 

[havaiana]

Re: Averaging Down for the win??

Let me just re word this "But i think i overall a good trader will make more averaging than stopping out."

to "But i think i overall a good trader will make more averaging than stopping out, in certain (most) market conditions."

Common sense needs to be implemented, like not doing it through announcements, In areas where there is a level nearby that could have a f load of stops trigger against the direction of your trade etc

 

[tech/a]

Re: Averaging Down for the win??

Let me give a basic example of going against what is on every trading 'do not' rule list, averaging down.

On the left are examples of a pull back scenario, on the right a range trading scenario.
Averaging down (Bottom examples) Using stops (Top examples). GREEN=entry RED=exit

Obviously if they they go our way the result is the same, win. If we are wrong or timing off the examples in the picture can occur.

A large % of the time you can still catch a good trade if your timing is off and scratch/small win/small loss a trade if you are wrong

View attachment 53567

Obviously there are the times there is no bounce, so there has to be an uncle point. But i think i overall a good trader will make more averaging than stopping out.

I think if people tried this they would be surprised at the results. I have found that the winning piles up so much it more than makes up for the occasions when the daily stop is smoked

Would just like to add it would probably be better to use a position size much smaller than your usual position size and only average up to, or less than your normal position size

For example if you trade 4 contracts, you could change to average down up to 3 times: 1 + 1 + 2 = 4.

Also a great way to practice trading because you will find you are trying to pick the tops and bottoms on your exits as well as your entries. Instead of exiting because your trade has gone against you x ticks, you exit because you think you are coming to the end of the wave/turn.

Any thoughts?

Any thoughts?

Try it.

I see contracts so your talking futures.

 

[havaiana]

Re: Averaging Down for the win??

Any thoughts?

Try it.

I'm have been trading YEN and AUD currency futures this way on sim during asian session, so far about 15 days trading, 5-15 trades a day. Daily stop not yet hit (daily stop is less than my largest winning day so far. If I had hit my daily stop on say 3 occasions, would still be comfortably ahead

Win rate > 70%
winning days > 85%
average win larger than average loser (not by a whole lot)
average win day larger than average loss day (this one would not be true long term i suspect)
Also average time in winning trades v losing trades is pretty close

 

[kid hustlr]

Re: Averaging Down for the win??

I do know of traders who average down. Only THE BEST traders I know do it.

I think this concept got touched on in this thread. You need to learn the rules, learn to abide by them, then learn when you can break them.

I think there are a number of caveats to averaging down and like 99% of people shouldn't do it.

Its kind of like selling volatility, it works, until it doesn't.

In my opinion anyone who doesn't have a MASSIVE amount of experience shouldn't be averaging down. ever.

 

[Trembling Hand]

Re: Averaging Down for the win??

There is a big difference having your timing out by a few bars on a 1 min chart in FX and Index land than doing it with stocks on an EOD basis which are much more trending.

There is also a BIG dif doing it on sim than doing it with real dosh and $10 a tick X every extra contract.

Having said that I totally agree with you.

 

[kid hustlr]

Re: Averaging Down for the win??

Having said that I totally agree with you.

lol

 

[skc]

Re: Averaging Down for the win??

Would just like to add it would probably be better to use a position size much smaller than your usual position size and only average up to, or less than your normal position size

For example if you trade 4 contracts, you could change to average down up to 3 times: 1 + 1 + 2 = 4.

There is a huge difference between an execute-as-planned phased entry vs the average punter's "I am losing so I'd double down after mortgaging the house" approach. IF moving progressively into a position is your strategy and you are keeping overall risk in check, then there's nothing wrong with it. The only issue of course, is that when you put on that first contract and your position go your way, you are only at 1/4 of the desired size. Do you chase, wait for a pullback or flip the bird to the chart?

I face this everyday with my own pairs trading. I need to decide do I wack the full size on straight up or should I wait for further divergence and put further layers on. I haven't backtested it statistically, but it is very rare that I go into profit straight away on most trades, so a layering-in approach seems sensible. Then again, it always feels like the slower and more conservative I make my entry, the faster the trade goes into profit without me riding it at full size!

Obviously there are the times there is no bounce, so there has to be an uncle point. But i think i overall a good trader will make more averaging than stopping out.

What's an Uncle Point?

 

[havaiana]

Re: Averaging Down for the win??

I do know of traders who average down. Only THE BEST traders I know do it.

I think this concept got touched on in this thread.

Thanks for that, this is exactly what i suspected. Especially for people trading with size, using stops just doesn't seem to make much sense.

It also explains why the market has certain patterns sometimes. Like the puke pattern at the end of a long sustained one way grind in one direction without a retrace.

- - - Updated - - -

There is also a BIG dif doing it on sim than doing it with real dosh and $10 a tick X every extra contract.

I have felt so sick i couldn't eat lunch doing it on a mini spot account, so can't imagine what it's like with full contracts

 

[havaiana]

Re: Averaging Down for the win??

There is a huge difference between an execute-as-planned phased entry vs the average punter's "I am losing so I'd double down after mortgaging the house" approach. IF moving progressively into a position is your strategy and you are keeping overall risk in check, then there's nothing wrong with it.

Agree 100% all the if/then statements need to be worked out before hand.

The only issue of course, is that when you put on that first contract and your position go your way, you are only at 1/4 of the desired size. Do you chase, wait for a pullback or flip the bird to the chart?

That's where I'm at now, I find it harder to pyramid in than to average down meaning i have larger size on some of my worst trades and less size on my best ones.

What's an Uncle Point?

The point where you have to cry uncle, or submit to the loss. For me it is when I hit my daily maximum loss.

I do however exit positions at loss if i think they won't come back, i don't try and turn every losing trade into a scratch.

I just try and do it on a bounce in my favour rather than just stop out at x ticks. The only time I hit a stop loss is my daily stop, or before a pre determined level where i think it could run as it is goes through, or before a news release

 

[Boggo]

Re: Averaging Down for the win??

In my opinion anyone who doesn't have a MASSIVE amount of experience shouldn't be averaging down. ever.

You will be lucky to last long enough to get a MASSIVE amount of experience imo, if you do have a massive amount of experience you shouldn't (wouldn't) need to gamble.

Just my

 

[Trembling Hand]

Re: Averaging Down for the win??

You will be lucky to last long enough to get a MASSIVE amount of experience imo, if you do have a massive amount of experience you shouldn't (wouldn't) need to gamble.

Just my

Boggo you would be very surprised then at how large futures traders trade. Pretty much spend half the time off side and adding to positions.

Very uncomfortable.

 

[skyQuake]

Re: Averaging Down for the win??

Boggo you would be very surprised then at how large futures traders trade. Pretty much spend half the time off side and adding to positions.

Very uncomfortable.

Have you developed a stomach ulcer yet?

imo futs chop and mean revert enough for averaging to work.
Stock can be more run-away-and-never-come-back

 

[Boggo]

Re: Averaging Down for the win??

Boggo you would be very surprised then at how large futures traders trade. Pretty much spend half the time off side and adding to positions.

Very uncomfortable.

I suspect that they would have either started with a lot of experience or are supervised through an institutionalized process that would have a calculated final expectation of a positive outcome.

I agree that some of the big boys do it differently but the comments are directed at statements on this forum which would tend to lead me to believe that we are not dealing with an institution of the calibre you may be referring to.

The average punter adopting this process would be unlikely get anything other than a warm fuzzy "I have got this game sussed" feeling which would rapidly dissipate as reality set in.

Just my

 

[Trembling Hand]

Re: Averaging Down for the win??

I suspect that they would have either started with a lot of experience or are supervised through an institutionalized process that would have a calculated final expectation of a positive outcome.

I agree that some of the big boys do it differently but the comments are directed at statements on this forum which would tend to lead me to believe that we are not dealing with an institution of the calibre you may be referring to.

Ha I think you would also be surprised at that too!! but yes no doubt they know what they are doing..... mostly.

The average punter adopting this process would be unlikely get anything other than a warm fuzzy "I have got this game sussed" feeling which would rapidly dissipate as reality set in.

Just my

The other thing Boggo is that as Skyquake and I pointed out EOD stocks behave vastly differently than shorter term Index and FX.

- - - Updated - - -

Have you developed a stomach ulcer yet?

Nah just a heart condition with a drinking ...... well some call it a problem.... I call stress relief.

 

[Ves]

Re: Averaging Down for the win??

Boggo you would be very surprised then at how large futures traders trade. Pretty much spend half the time off side and adding to positions.

Very uncomfortable.

Also, just out of curiousity, wouldn't the larger traders have position sizes that are too big to use stop losses in a lot of cases (because of liquidity), so they'd have to unwind them on a more gradual basis, rather than a big dump because an exit position has been reached?

 

[kid hustlr]

Re: Averaging Down for the win??

I suspect that they would have either started with a lot of experience or are supervised through an institutionalized process that would have a calculated final expectation of a positive outcome.

Ha I think you would also be surprised at that too!! but yes no doubt they know what they are doing..... mostly.

Hehe these made me laugh.

I'm still very early on in the game but I remember asking a couple of questions to a few of the guys about keeping records and knowing there stats. They just looked at me like I'm an idiot.

Then I asked something about basis and cost of carry, almost got laughed out of the joint.

 

[bagwan]

Let me give a basic example of going against what is on every trading 'do not' rule list, averaging down.

On the left are examples of a pull back scenario, on the right a range trading scenario.
Averaging down (Bottom examples) Using stops (Top examples). GREEN=entry RED=exit

Obviously if they they go our way the result is the same, win. If we are wrong or timing off the examples in the picture can occur.

A large % of the time you can still catch a good trade if your timing is off and scratch/small win/small loss a trade if you are wrong

View attachment 53567

Obviously there are the times there is no bounce, so there has to be an uncle point. But i think i overall a good trader will make more averaging than stopping out.

I think if people tried this they would be surprised at the results. I have found that the winning piles up so much it more than makes up for the occasions when the daily stop is smoked

Would just like to add it would probably be better to use a position size much smaller than your usual position size and only average up to, or less than your normal position size

For example if you trade 4 contracts, you could change to average down up to 3 times: 1 + 1 + 2 = 4.

Also a great way to practice trading because you will find you are trying to pick the tops and bottoms on your exits as well as your entries. Instead of exiting because your trade has gone against you x ticks, you exit because you think you are coming to the end of the wave/turn.

Any thoughts?

market = volatility.
not the standard deviation type, but the up and down type.
a trend in one time frame is volatility in another.
use position sizes 100 times smaller than usual.
don't take a view on market direction.
correlations.

 

[waza1960]

I've being discretionary trading like this for years .Here's some of my real live trading stats from a small fx account.

https://www.myfxbook.com/portfolio/mt4-527013/642170

 

[boofis]

All of this seems pretty dependent on what product you trade. A US treasury trader of the biggest size might have anywhere up to 5000 available on the bid to hit into for their trade or to dump into if they really, really had to just get out of a position, so averaging in seems a bit counterproductive.
But if you have only got 10 contracts across 5 price levels that would be a sweep entry and you've got a 100 contract capability, well you might want to start averaging, no? lol.