Averaging when already In the RED.... | Forex Factory

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Averaging when already In the RED....

  • #1
  • First Post: Apr 21, 2009 8:05pm Apr 21, 2009 8:05pm
Hi Guys,

Im starting this thread as a disscusion on whats refered to as 'Averaging down' (I think). I understand that this Is often looked down on as a bad move, but with the coming of FTI there seems to be quite afew practising it and I also have suspicions that some senior members also Emlploy It in to their trading plans.

I averaged down In my method that I tested In the Journal section of this site, and although I did very well became bored with testing It that way so have since tested It on a forex simulator and have been experiencing similar results.

Now, like anything In trading, averaging down needs to be done In a planned and risk aware manor. I see it like this, If my bias Is still reasonably strong for the original direction then why not enter at a better price? And, correct me If Im wrong in my assumption, but the further price moves the more likely It is due to retrace(atleast a little), and If this doesnt happen, then you always have your pre-determined stop price to take you out of the trade gone wrong.

Does anyone else here regularly trade In this way?

Leon
Living the adventure in my head.
  • #2
  • Apr 21, 2009 8:19pm Apr 21, 2009 8:19pm
Quoting Leonlorenzo
Hi Guys,

Im starting this thread as a disscusion on whats refered to as 'Averaging down' (I think). I understand that this Is often looked down on as a bad move, but with the coming of FTI there seems to be quite afew practising it and I also have suspicions that some senior members also Emlploy It in to their trading plans.

I averaged down In my method that I tested In the Journal section of this site, and although I did very well became bored with testing It that way so have since tested It on a forex simulator and have been experiencing similar...
I call it "Scaling In" & Yes; I do utilze it BUT:
I like to think that I have a Reason to Believe I am on the right side of the fence before I do so.
  • #3
  • Apr 21, 2009 8:26pm Apr 21, 2009 8:26pm
I'm no expert, but this guy apparently made a few quid.
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The breaking of a wave cannot explain the whole sea.
  • #4
  • Apr 21, 2009 8:29pm Apr 21, 2009 8:29pm
i average down in everything is do, even when buying stocks, esp in the current climate.

heck i average down and up too.

more importantly, the risk has to be clearly underlined. the rest is all modus operandi
  • #5
  • Apr 21, 2009 8:29pm Apr 21, 2009 8:29pm
I also use it and also have success with it. Although I'm in line with Bemac and use it more as an "scaling in" approach. I put higher priority on managing the trade than the actual entry.

Trade Well..
Brent



Quoting Leonlorenzo
Hi Guys,

Im starting this thread as a disscusion on whats refered to as 'Averaging down' (I think). I understand that this Is often looked down on as a bad move, but with the coming of FTI there seems to be quite afew practising it and I also have suspicions that some senior members also Emlploy It in to their trading plans.

I averaged down In my method that I tested In the Journal section of this site, and although I did very well became bored with testing It that way so have since tested It on a forex simulator and have been experiencing similar...
  • #6
  • Apr 21, 2009 8:47pm Apr 21, 2009 8:47pm
Quoting Craig
I'm no expert, but this guy apparently made a few quid.

I know, this Is the kind of thing Id be on your side of the fence with usually, but I cant argue with the fact that it seems to be working out... for now.
Living the adventure in my head.
  • #7
  • Apr 21, 2009 8:48pm Apr 21, 2009 8:48pm
Quoting Bemac
I like to think that I have a Reason to Believe I am on the right side of the fence before I do so.
And I wouldnt expect anything less from a respected guy like you....
Living the adventure in my head.
  • #8
  • Apr 21, 2009 8:49pm Apr 21, 2009 8:49pm
Quoting jest1081
i average down in everything is do, even when buying stocks, esp in the current climate.

heck i average down and up too.

more importantly, the risk has to be clearly underlined. the rest is all modus operandi
Agreed
Living the adventure in my head.
  • #9
  • Apr 21, 2009 8:50pm Apr 21, 2009 8:50pm
Quoting forex2stay
I also use it and also have success with it. Although I'm in line with Bemac and use it more as an "scaling in" approach. I put higher priority on managing the trade than the actual entry.

Trade Well..
Brent
Do you scale out aswell?

The reason I ask Is because If you find entries difficult to pinpoint then It wont be any easier to decide on a good exit.
Living the adventure in my head.
  • #10
  • Apr 21, 2009 9:11pm Apr 21, 2009 9:11pm
A futile hedge is where you have a position going long in the long term for example, and then take a position short when you see you could make a nice short-term retracement trade, without it affecting your overall position.

Or is this where you take a trade going short for example, the market retraces and then you take another position going short again when you think the market has a continuation of the original move?
  • #11
  • Apr 21, 2009 9:14pm Apr 21, 2009 9:14pm
Quoting Limstylz
A futile hedge is where you have a position going long in the long term for example, and then take a position short when you see you could make a nice short-term retracement trade, without it affecting your overall position.

Or is this where you take a trade going short for example, the market retraces and then you take another position going short again when you think the market has a continuation of the original move?
Second option, going short when you have a short already in the red.
Living the adventure in my head.
  • #12
  • Apr 21, 2009 9:24pm Apr 21, 2009 9:24pm
Roland Campbell from Millionaire Traders averages down as his primary method of trading. I've seen his personal and managed account statements. Sometimes he takes 6-8 averages in one trade. Its powerful as long as you use proper risk throughout the whole average.

Its used in "zone to zone" trading. When you believe that price will move from one general "zone" to another, you don't have definitive entries and exits, so you build up a position in one zone, and you scale out in the one you're aiming for, or dump it if its not working out.

Lets say you see there are obviously stops at a certain level that you believe the market will run. You are trading "toward" a point rather than "away" from a point. So you can start getting in and either pyramid up as it closes in or average down as it draws away initially. Then you dump your position on your target, or get out if it isn't working out. Works great on round number breaks, option expiries, and post news volatility.
  • #13
  • Apr 21, 2009 9:27pm Apr 21, 2009 9:27pm
I recall reading that most martingale strategies use this and there was a relatively popular fib strategy using that technique at retracements/moves to fib levels somewhere on this forum (or maybe over at TSD, now I think about it).

I tried using it a couple of times with various demo's, but always blew the account as my original entry was rubbish and then I misread all the signs for a reversal rather than a retracement. Would you also double your position on each re-entry like martingalers do or as jest suggested and scale into the trade?
  • #14
  • Apr 21, 2009 9:29pm Apr 21, 2009 9:29pm
hxcjf, just answered my question...
  • #15
  • Apr 21, 2009 9:32pm Apr 21, 2009 9:32pm
Quoting hxcjf
Roland Campbell from Millionaire Traders averages down as his primary method of trading. I've seen his personal and managed account statements. Sometimes he takes 6-8 averages in one trade. Its powerful as long as you use proper risk throughout the whole average.

Its used in "zone to zone" trading. When you believe that price will move from one general "zone" to another, you don't have definitive entries and exits, so you build up a position in one zone, and you scale out in the one you're aiming for, or dump it if its not working out.

Lets...
Any idea what his possition sizing was for entries after the inital one? On 8 averages I cant imagine him increasing sizes much. And any idea about his average win/loss?
Living the adventure in my head.
  • #16
  • Apr 21, 2009 9:59pm Apr 21, 2009 9:59pm
Wow, It's been a while since I've been on FF...

There is a right way and a wrong way to average. The wrong way is what most people tend to utilize, and that is opening a trade, and then just doubling that order when the trade moves against them.
The right way to average is to break apart your order into small bits and add on whatever you are trading becomes cheaper and cheaper.

Let's say for example you usually trade 3 lots. If the EUR/USD is currently trading at 1.30, then add on one lot at 1.30, another at 1.2950 and a third at 1.29.. This way you can get yourself in at a healthy price without over leveraging your account.

Also, make sure that averaging makes sense with your entry/exit strategy. If you're trading breakouts, it may not make sense..
  • #17
  • Apr 22, 2009 4:24am Apr 22, 2009 4:24am
Quoting hxcjf
Its used in "zone to zone" trading...

Works great on round number breaks, option expiries, and post news volatility.
Zone to zone - that's where I always thought there was most benefit - when the entry is not an absolute number (scale in), or the exit isn't a defined target (scale out).

But I can't see how round number breaks or expiries fall into that category? The more specific the entry/or target, the less benefit of scaling, surely?
  • #18
  • Apr 22, 2009 4:51am Apr 22, 2009 4:51am
Quoting superdezign
Wow, It's been a while since I've been on FF...

There is a right way and a wrong way to average. The wrong way is what most people tend to utilize, and that is opening a trade, and then just doubling that order when the trade moves against them.
The right way to average is to break apart your order into small bits and add on whatever you are trading becomes cheaper and cheaper.

Let's say for example you usually trade 3 lots. If the EUR/USD is currently trading at 1.30, then add on one lot at 1.30, another at 1.2950 and a third at 1.29.....

Agree with this post 100%, I think that any kind of averaging or scaling in should be previously calculated with proper mm and entry levels. Otherwise it would be like "adding to a loss". It would be completely different, of course, if we are building up a position as it goes our way.
  • #19
  • Apr 22, 2009 4:52am Apr 22, 2009 4:52am
Hi,

Superdezign is correct: your maximum position should be the end-position comprising of as many increments of individual smaller positions as you see fit.

Once I see a possible change in direction, I place order types (limits below the price and stops above the price - or vice versa) to 'build' a position.

If the price gets of the starting blocks far enough, I trail, if not - well, I always have enough reserve to get out even at worst.

I stick to certain gaps between each order and usually have 4 orders for starters - then see how it goes.

regards
daytrading
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  • #20
  • Apr 22, 2009 4:59am Apr 22, 2009 4:59am
Quoting jest1081
i average down in everything is do, even when buying stocks, esp in the current climate.

heck i average down and up too.

more importantly, the risk has to be clearly underlined. the rest is all modus operandi
^^^ This is the correct answer.

Averaging up is even better though.
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