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is Averaging Down Profitable?

  • #61
  • Aug 2, 2020 5:24am Aug 2, 2020 5:24am
Hello everyone. I am convinced that averaging is always profitable and not just down. I have been working on it for years and this is a major outcome when the price goes in the opposite direction. But I use it up to certain limits according to the trend. If you reverse the trend there is a place to stop. If it is not done, you get just a grid system, which sooner or later is detrimental to the account. I do the averaging with or without progression and not only at certain price-distance levels but also on an oscillator signal. For me, this is a kind of way out, part of my system. So it works and don't be surprised but master it in moderation. Good luck
  • #62
  • Nov 25, 2020 12:52pm Nov 25, 2020 12:52pm
Play around with averaging EA and here some ideas...

Using averaging without SL. Here simple strategy 10 years backtest results:

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And here results using "freezing"... that's when averaging level hit N (N orders already opened, volume multiplier used) then open opposite orders with the same volumes and wait X hours to let market calm down - we wait for the trend to stall. Trends are bad for averaging. So we avoid opening new levels when reaching level N.

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In both cases initial capital 50000 usd.

In 1st case worst drawdown ~86000 usd (so we could lose all account if would be started EA in worst time) and total profit 161000 usd.

But 2nd case worst drawdown ~25000 usd and total profit 226000 usd.

Seems "freezing" helps. Averaging works best with ranging markets. So when we see that market is trendy - turn off averaging and wait for better times.

Just idea... dont know what to do with this EA.. can it be considered "stable" and run with real money? Maybe on cent account...
  • #63
  • Nov 26, 2020 1:37am Nov 26, 2020 1:37am
I have tested grid, averaging and same level. Same level always lose. It happened mostly on new day start because high spreads cause triggering lots of new orders that just eat the margin. Grid it better, but the graph is not so straight. Also the grid is expanding the trading zone size so it can be never ending story. The best is averaging. But static take profit is not good so I prefer to exit the trade on signal (first trade, basket) and decrease profit size after X averaging. Also I have emergency profit reduce to for example 1$ after 6 averaging. It was an example: I had 100$ as profit target, it was 7 averaging and profit was 72$ and then -2000$. So it is better to exit with +1$, but not risk too much with 8 averaging levels. I will try not x1/x2 averaging but like topic starter said, so may be the results will be much better. May be 20%, 30%, 50%, 100% and then x2 this way.
Observer effect
  • #64
  • Jan 27, 2021 7:21am Jan 27, 2021 7:21am
Recently I'm exploring averaging down as stand alone strategy for scalping.
Buy each 1M candle with lower price and above some EMA
Sell each 1M candle with higher price and below some EMA
Close all after target profit hit (small one)
Close offsetting sells/buys to release the margin

As long as you are well capitalized this strategy takes its own bias with the market.
Only hard part is patience and having capital to keep 100-200*0.01 lots alive.
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  • #65
  • Jan 28, 2021 4:23am Jan 28, 2021 4:23am
Averaging down is a form of martingale. And as we know martingale does not work long term.

Is it profitable?? Yes, absolutely. Averaging down definitely works short term. But at some point the strategy always breaks down ending with substantial losses. And then you start to think......

The opposite strategy seems much more compelling from mathematical point of view. So you try this again.
Averaging UP or adding to your winning positions. This way you can have linear decline and exponential growth within your open PL.
Very good risk:reward ratio? Sounds great?

And sure it is great. Small % of the positions can grow into monster positions if you are lucky enough to catch the largest fat tails.
Sometimes a single fat tail can make you thousand's of % profit.

The first problem is that you have to trade with very small initial size in relation to your capital because at least 75-80% of the positions will end up negative.
Can you handle 50 or 100 losing trades in a row? It's very difficult, almost impossible. Even with automated systems. Eventually you always start to question the system.
Is it still a valid system? Meanwhile the drowdown gets larger and larger......it constantly looks like a dead end! You wait for the next fat tail...which may come tomorrow or next month or next year or.......never because your account is gone.

Sooner or later you will have to realize the inevitability of the consequences when you play in negative sum game!
  • #66
  • Jan 28, 2021 6:25am Jan 28, 2021 6:25am
Quoting alphaomega
Averaging down is a form of martingale. And as we know martingale does not work long term.
"As we". Are you referring to yourself in plural?
  • #67
  • May 6, 2021 8:02pm May 6, 2021 8:02pm
Quoting Wilczasty
Recently I'm exploring averaging down as stand alone strategy for scalping. Buy each 1M candle with lower price and above some EMA Sell each 1M candle with higher price and below some EMA Close all after target profit hit (small one) Close offsetting sells/buys to release the margin As long as you are well capitalized this strategy takes its own bias with the market. Only hard part is patience and having capital to keep 100-200*0.01 lots alive. {image}
I am also exploring this by writing an EA for small renko bricks. Averaging down in both directions with 100 x 0.01 lots in each position.
Leave the Gun, Take the Armani
  • #68
  • Feb 13, 2023 8:09pm Feb 13, 2023 8:09pm
Hi everyone. Can anyone please name all of these management systems like grid, martingale , averaging down and ...
Is there any more management systems or that's all?
Isn't averaging down prohibited in some brokers?
Thanks in advance.
  • #69
  • Mar 17, 2024 1:10pm Mar 17, 2024 1:10pm
I like this strategy but only with high amount of capital. For example allocate 10K$ per 0.01 lot and only trading one forex pair at a time to avoid accumulating grid. Otherwise it's in my humble opinion too risky.
  • #70
  • Mar 20, 2024 4:23pm Mar 20, 2024 4:23pm
Averaging down or (martingale) can be profitable for a period of time. Everybody can do that.

I prefer the other way, keeping my losses very small where the winning trades are so much bigger.
Doing it mosty with the S&P500 where the overall cost (spread/commissions etc.) is very tight/small compared to its intraday movement.
That's the way to go.

Risk:Reward is one of the most important thing in trading, only few real traders can pull it off in the long run.
And it's also one of the hardest things to do.
  • #71
  • Aug 5, 2025 10:45am Aug 5, 2025 10:45am
yo, xausar here...

I've attached a picture here. Its a visual break down of how additional positions affects total positioning (entries, not outcome thats R:R). Ive denoted the risk as percentages. The first level denoting 0.6% being allocated at that level (pos1). Second level denotes 0.8% risk being allocated (pos2). Disregarding exit and R:R multiplier. The average entry positioning on this trade has strayed away from the first level due to the second level.

If the second level simply matched the first level in risk size. Then my average position would move exactly between the two. But due to the diminishing nature of the mathematics involved, the more I increase the risk of pos2 to be higher than pos1, my risk supersedes the movement of the average entry. Think about it this way. To offset the first position completely so that my average position is at the second level, I would need to create a position of infinite %risk, but to move it halfway between the two it would require only equal. Drastic.

So lets say at the second level you double, martingale style to offset losses on first entry. You risk 0.6 at position1 and now 1.2 at position2. The formula becomes 1.2/(0.6+1.2)= 1.2/1.8 = 2/3 = 0.66... You have increased your total risk on the second position to the point where it would take 3 position1 wins to recuperate your losses if you lose entirely, only for a positional benefit of moving from the half line to the two thirds line. At just 0.6pos1 and 0.6pos2 you it would only take you 2wins at pos1 to recuperate your losses if you lose entirely. Its important to note this because you may win a lot of Pos1 levels and fail Pos2 levels due to market conditions/reversals. You need to be able to regain, which is the main issue people have when they lose with averaging down strategies.

When I initially started averaging down, I believed in doubling to achieve profits but the reality is that the mathematics dont support that. Simply adding a position of the same size is more than enough and in fact I will update my system to reflect this today. As you can see I am using 0.6 to 0.8 which gives me 4/7. But why not just go equal? I'm hardly getting a positional benefit in reality. You can argue that your mean reversion is the way of the forex market or that if you keep adding entries you will eventually win, but that sounds a lot like gambling.

Its still averaging down even if your positions aren't increasing and it seems to be the most sustainable option regardless of your strategy.

TL;DR Equal positions throughout the position sequence is the most mathematically optimized and sustainable way of moving your average entry lower in relation to your risk exposure. Averaging down is great for those working with limit orders and levels. However, profitability comes from trade filtration not positioning. Positioning is just math.
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  • #72
  • Aug 5, 2025 11:00am Aug 5, 2025 11:00am
I don't think averaging down is a form of martingale. In fact martingale is martingale, its a separate strategy hence why it has its own name. Averaging down simply refers to buying more positions as price moves red against your entry. The fact that averaging down has been colluded with martingale may speak to why folk think its not profitable. I just wanted to note that if we do look at the R:R of the positions I displayed, you can abuse levels. (Just an example of practical averaging down).

1:1 R:R seems like a pathetic ratio, except the fact that typical single level technical edge then transforms into a two level edge(in my case backed by macro and daily sentiment). Where 2 positions can win and 1 can break even leaving 1 loss out of 4 positions. Also it means that I am always informed about the state of a position without having to open a chart. Once I am in a trade, I am in until I win or until complete reversal. There are many ways to distribute positions, I would advise folk to just position how they're comfortable and do the math to verify when you can be bothered, if there's an optimal way of doing what you're already doing.
  • #73
  • Aug 13, 2025 10:37am Aug 13, 2025 10:37am
Ooops, just quickly wanted to share that 0.2 and 0.4 was supposed to be 0.4 and 0.2. Weighted towards the higher R:R for increased positive expectancy. Also on the idea of averaging down again, I think it has the potential to lever the power of your edge but if used incorrectly it wont work. You need to think about what your edge mostly is and where.

For example, if your edge is mostly macro-fundamental based, then you want to be averaging down on the daily chart, through many levels with low risk. Any lower timeframe and your not averaging down with that wide-term macro edge. If your edge is news driven in the past hour then you want to be on 15-5m charts and averaging there, again through multiple levels.
But... if your edge is mostly technical,
Like a level/zone, then your averaging down wants to exist purely in that zone, not through multiple levels like I demonstrated. What I demonstrated with the drawing was a technically enhanced long term macro play. But if you want to do a macro enhanced technical play on the short term, focus on averaging down within that supply/demand zone. On a 4hour chart, if a level is broken then that momentum will likely keep continuing to then test the daily level, thats why having 2 or 3 4hour levels is not great. For technical plays, your edge lies in that price structure before the trade so I wouldn't average into a loser. But JPY on the daily chart with potential rate hikes on the way is a good example, just be aware of fee for rate difference.
  • #74
  • Aug 19, 2025 9:34am Aug 19, 2025 9:34am
Quoting xausar
I don't think averaging down is a form of martingale. In fact martingale is martingale, its a separate strategy hence why it has its own name.
I think the real reason it "has its own name" is that the name has been invented by people who wanted to call it something that sounds nicer and less dangerous than "adding to losers" which is what it actually is.

On Youtube, of course, the people promoting it like to call it either "averaging down" or sometimes "dollar cost averaging". These are people who make money from their Youtube channels by telling people what they want to hear. They also make money from trading, in the short term. Not in the long term. For sure.

A very well known example is the "King Of Forex" who has very long winning runs most of the time. He promotes his business very well, there, like many people do on Youtube. Unfortunately for his customers (the people whose accounts he manages for them, this is the real purpose of his Youtube channel, to promote that service) although they steadily make some money most of the time, eventually he blows their accounts. Exactly as happened to so many of his customers quite recently.

But this will not stop him from getting more customers who like to believe that "averaging down" or "dollar cost averaging" is a legitimate and sensible approach of trading, and that the people who say the opposite "don't understand it", and they are "not doing it properly".

The truth is that the enthusiastic followers of adding to losers are often the same people who skipped school sometimes on the days of the math lessons, especially when probability was the subject taught!
  • #75
  • Aug 19, 2025 10:17am Aug 19, 2025 10:17am
Quoting Dominique-T
But this will not stop him from getting more customers who like to believe that "averaging down" or "dollar cost averaging" is a legitimate and sensible approach of trading, and that the people who say the opposite "don't understand it", and they are "not doing it properly".

There are people who say the same kind of thing about Martingales, hedging and all kinds of nonsense. If you dare to criticize or to cast aspersions, then of course you just "don’t understand" and you’re "doing it wrong".

It’s all about deciding who you choose to listen to, isn’t it?

Heaven forbid that anyone should ever ask themselves why - if someone could trade steadily and profitably over the long term - they would be spending hundreds of hours making videos to post on Youtube.
  • #76
  • Aug 20, 2025 6:42am Aug 20, 2025 6:42am
Quoting lolik2020
Hi, Averaging down is a strategy that is used to lower the average entry price of a trade, so it become in average better price. As a programer, after 3 yrs experience in automating trading and testing... I have come into conclusion that, averaging down is profitable strategy! but, with the following condistions: 1. set 1st trade with 20% of regular lot size, SL and TP levels. 2. if trade goes agains you, set 2nd trade with 30% of regular lot size, cause the stoploss is closer 3. if trade goes agains you, set 3rd trade with 50% of regular lot size,...
averaging strategy is not as simple as likes that. As strong trend and price goes againts you, then your account would be broke down. Based on my experience, market condition that suitable for averaging strategy when the market on sideways mode.
  • #77
  • Aug 20, 2025 4:58pm Aug 20, 2025 4:58pm
Quoting lolik2020
Hi, Averaging down is a strategy that is used to lower the average entry price of a trade, so it become in average better price. As a programer, after 3 yrs experience in automating trading and testing... I have come into conclusion that, averaging down is profitable strategy! but, with the following condistions: 1. set 1st trade with 20% of regular lot size, SL and TP levels. 2. if trade goes agains you, set 2nd trade with 30% of regular lot size, cause the stoploss is closer 3. if trade goes agains you, set 3rd trade with 50% of regular lot size,...
not sure what is meant by 20% of regular lot size, then 30% of regular lot size, then 50% of regular lot size.

averaging could be profitable if you could control entry and the margin used.
LUCKY golden trades, LUCKY gold investor trading style
  • #78
  • Aug 20, 2025 7:03pm Aug 20, 2025 7:03pm
Quoting The-Flipper
Averaging down or (martingale) can be profitable for a period of time. Everybody can do that. I prefer the other way, keeping my losses very small where the winning trades are so much bigger. Doing it mosty with the S&P500 where the overall cost (spread/commissions etc.) is very tight/small compared to its intraday movement. That's the way to go. Risk:Reward is one of the most important thing in trading, only few real traders can pull it off in the long run. And it's also one of the hardest things to do.
yeah averaging down is suitable for US stock or developing/developed state stock market. Anyways, despite price of stock was plunge, there was change to rebound in the future as long as economic condition grow better.
But it is too dangerous for forex trading. because forex market is more volatile than stock or bond.
  • #79
  • Aug 23, 2025 5:17am Aug 23, 2025 5:17am
Quoting SmokyScalper
Heaven forbid that anyone should ever ask themselves why - if someone could trade steadily and profitably over the long term - they would be spending hundreds of hours making videos to post on Youtube.

Lol - it's the "great unanswered question" in most trading forums on the web. Mostly indeed because it's the great unasked question.
  • #80
  • Sep 17, 2025 10:38am Sep 17, 2025 10:38am
Quoting Dominique-T
A very well known example is the "King Of Forex" who has very long winning runs most of the time. He promotes his business very well, there, like many people do on Youtube. Unfortunately for his customers (the people whose accounts he manages for them, this is the real purpose of his Youtube channel, to promote that service) although they steadily make some money most of the time, eventually he blows their accounts. Exactly as happened to so many of his customers quite recently.
Exactly so. He fell into the mean reversion trap. As so many do, eventually. But unfortunately the ones on Youtube tend to take a lot of other people with them.

Brokers must love them, though, so it's not as if they're altogether without admirers.
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