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Averaging when already In the RED....

  • #21
  • Apr 22, 2009 5:05am Apr 22, 2009 5:05am
Yes, once the position is built and moves into the desired direction, you are automatically averaged UP by as many positions as you have averaged down. Further positions will (or can) be added and each will have its own trail in order that eventually only the last in the sequence can lose.

regards
daytrading
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  • #22
  • Apr 22, 2009 5:27am Apr 22, 2009 5:27am
Average up, average down, martingale or whatever name you call it.
As long as it works, then it is good system.
  • #23
  • Apr 22, 2009 6:28am Apr 22, 2009 6:28am
i always average out. I also average in but only as the price moves in my expected direction and not away from it in the hope of mean reversion. I don't know of a single credible trader who averages down. Jacko, Jim16 and several other mentors of the same stature in this forum have said its much better to take the loss. I tend to agree with them even with my limited experience.

I remember tdion once saying gj went in one direction by 800 pips without retrace, there was some thread about it where traders were employing some form of a martingale strategy. Most of them got screwed.

I tried averaging down on vhands it worked well for about 8 months and then came the inevitable end

I think any way you look at it averaging down is a recepie for disaster more so in fx as trends are quite strong.

Just didnt work for me I can't justify throwing good money after bad believing things will turn around.

This is just my personal opinion. In the end all that matters is the money you rake in irrespective of the method you follow.
  • #24
  • Apr 22, 2009 6:55am Apr 22, 2009 6:55am
Quoting fugly
I remember tdion once saying gj went in one direction by 800 pips without retrace, there was some thread about it where traders were employing some form of a martingale strategy. Most of them got screwed.

I tried averaging down on vhands it worked well for about 8 months and then came the inevitable end

I think any way you look at it averaging down is a recepie for disaster more so in fx as trends are quite strong.
Its all down to controlling your risk...... like always. If you have a possitive expectancy and can controll your risk then there Is no problem.
Living the adventure in my head.
  • #25
  • Apr 22, 2009 6:57am Apr 22, 2009 6:57am
Hello, didn't say i find entries difficult to pinpoint I said i put more priority on managing the trade, but yes some of the time i do scale out.



Quoting Leonlorenzo
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.
  • #26
  • Apr 22, 2009 7:00am Apr 22, 2009 7:00am
Fugly,

There is a difference between 'building' a position and throwing good money after bad as you put it by keeping a dead position alive.

Before the beginning of a major directional move (or trend), there is usually a preceeding period of indecisiveness. That period can be several 100 pips in range (depending what the main TF is you are looking at).

Since the trader does not know the precise timing of the impending move, he has to position himself strategically to gain the best average entry for the whole intended position. That in my experience won't just happen by adding to the position after it has moved already your way - instead, you create a much better average by taking advantage of fluctuations in the range which are initially not in you favour.

As previous posters have pointed out, it has to happen in a very calculated procedure in order not to overleverage, and it is all depending on the intended total size of the position.

regards
daytrading
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  • #27
  • Apr 22, 2009 7:40am Apr 22, 2009 7:40am
Quoting daytrading
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.
DT - nice averaging. But how you do get out a b/e at worst?
Say in your eg, you've divided your risk into 4 orders:
2 limit buys below, 2 stop buys above.
If from that position price moves down and past your limits into the red, do you then use the 2 stop buys part of your order (which haven't been triggered) to 'escape' the losing trade?
  • #28
  • Apr 22, 2009 9:03am Apr 22, 2009 9:03am
Quoting triphop
DT - nice averaging. But how you do get out a b/e at worst?
Say in your eg, you've divided your risk into 4 orders:
2 limit buys below, 2 stop buys above.
If from that position price moves down and past your limits into the red, do you then use the 2 stop buys part of your order (which haven't been triggered) to 'escape' the losing trade?
Triphop,

I don't know in advance in which order the entries will be stacked. I take my first entry at market and place the limit/stop according to where the price moves next. So for example there could be one market order, one limit order below (if long the market) which might never get triggered because the market takes off in my direction from the start and I keep adding on the way up.

If I enter at market and the price immediately moves against the desired direction, I might place only one limit order further below in order to gauge if my idea still holds - then I have enough firepower to let it drop to support levels which where I might decide to enter another order at market to rescue the trade possibly at the half way mark.

I never know how far off I am when I think its time to build a position - but my order size at that point is small enough to be wrong and still come out ok while when I am right, the final amount of accumulated small orders (which IF I am right will be trailed), make up quite a chunky position in my favour - with only the last increment prone to lose.

regards
daytrading
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  • #29
  • Apr 22, 2009 9:10am Apr 22, 2009 9:10am
Here are the last 3 positions I am building since the beginning of this week.

Currently up by 2.4%, worst DD was at 1.2% and trailing most orders by now.

regards
daytrading
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  • #30
  • Apr 22, 2009 9:56am Apr 22, 2009 9:56am
Thanks DT, much appreciated. I mostly trade swing timescales and I've been looking for ways of improving entry (I'm currently one shot kind of trader), and this looks just the job.
  • #31
  • Apr 22, 2009 10:14am Apr 22, 2009 10:14am
The key is planning. If averaging fits into your "plan" then its fine. If you took an full initial position, and then just average to try to get out of a loser, risking more than you planned, you will run into an outlier that will wipe you out. You still always have a stop, but you are trading momentum and directional ranges rather than precise price points.

Roland has a lot of small winners (1%) (probably 75-80%), an occasional larger loser(3-5%), and some larger winners (3-5%). Large winners happen much more often than large losers. The idea is to predict where price will "end up" and then average in until it hits your target and then dump it.
  • #32
  • Apr 23, 2009 3:34am Apr 23, 2009 3:34am
Hi,

Just to illustrate the scaling-in process (or averaging-in) more to the point of the thread.

The usd/chf position has been stopped out for a profit, so has the usd/cad position. The only position which has survived with a total of 4 profitable longs on a trailing stop is eur/usd. This one has the potential to run until the end of the week.

Either way, 2% profit are locked in for the week (and this week was not too active in terms of trending moves).

regards
daytrading
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  • #33
  • Apr 23, 2009 4:17am Apr 23, 2009 4:17am
The trailing stop for all eur/usd long positions now moved further in our favour - and first retracement allows to identify new short-term uptrend.

New TL as a measure to move stops along - until it turns again.

regards
daytrading
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  • #34
  • Edited Apr 24, 2009 9:27am Apr 23, 2009 6:01pm | Edited Apr 24, 2009 9:27am
Quoting daytrading
The trailing stop for all eur/usd long positions now moved further in our favour - and first retracement allows to identify new short-term uptrend.

New TL as a measure to move stops along - until it turns again.

regards
daytrading
Its nice to get a look In on how you trade DT, Ive never realy read any mention by you in regards to your method of trading before.
Living the adventure in my head.
  • #35
  • Apr 24, 2009 4:19am Apr 24, 2009 4:19am
Hi Leon,

many ways lead to Rome. It's one of the strategies available to trade - there are more in the tool box; some short-term some long-term.

Closed the bulk +300 (with an entry avg. at 1.2945), which brings the week to over 5% - have to cut the grass for the next 3-4 hours since rain has been promised for the weekend.

regards
daytrading
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  • #36
  • Edited 9:03pm Apr 26, 2009 7:58pm | Edited 9:03pm
Quoting daytrading
Hi Leon,

many ways lead to Rome. It's one of the strategies available to trade - there are more in the tool box; some short-term some long-term.

Closed the bulk +300 (with an entry avg. at 1.2945), which brings the week to over 5% - have to cut the grass for the next 3-4 hours since rain has been promised for the weekend.

regards
daytrading
That was a very nice trade mate.

Just out of curiosity(on EU), at what price and time was your 1st Buy made and which of the Buys were made while price was rising? Im just trying to get an idea of how the trade developed.

Leon

EDIT: Middle, highest, lowest (order of Buys made)? If so, had you planned to average further down If price continued? Regardless, once the combination of trades had reached(or was getting closer) to your risk barrier, would you proceed to scale out of the losing possitions largest loss 1st or close all at once??

Hope Im not being too nosey.
Living the adventure in my head.
  • #37
  • Apr 26, 2009 10:30pm Apr 26, 2009 10:30pm
Quoting Craig
I'm no expert, but this guy apparently made a few quid.
Losers average losers. Well said, PTJ, well said!
Take a report.
  • #38
  • Apr 27, 2009 2:58am Apr 27, 2009 2:58am
Quoting Leonlorenzo
That was a very nice trade mate.

Just out of curiosity(on EU), at what price and time was your 1st Buy made and which of the Buys were made while price was rising? Im just trying to get an idea of how the trade developed.

Leon

EDIT: Middle, highest, lowest (order of Buys made)? If so, had you planned to average further down If price continued? Regardless, once the combination of trades had reached(or was getting closer) to your risk barrier, would you proceed to scale out of the losing possitions largest loss 1st or close all at once??

Hope...
Hi Leon,

1st buy EU on 21st at 07:54 @ 1.2946
2nd buy EU on 21st at 13:03 @ 1.2915
3rd buy EU on 21st at 14:12 @ 1.2975

I had one further buy limit at 1.2885 if it would have gotten there since the previous days low was 1.2886.

The 3rd buy at 1.2975 was a buy-stop. If the buy limit at 1.2885 would have been triggered, I doubt that the 3rd buy would have been activated - instead I believe the price would have discovered new lows first. In that case, I would have had a position average at around 1.2915 (instead of 1.2945). I would have then figured out support and bought enough to average the price down from 1.2915 to where I believe it might retrace back for damage limitation. Then exit and regroup.

Unless a complete unexpected massive event hits the news, and I am not talking about scheduled daily releases, you can always expect the price to retrace to a certain amount after discovering a new low/high. That usually provides the opportunity to get out at a better than expected level on a failed trade.

regards
daytrading
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  • #39
  • Apr 27, 2009 3:34am Apr 27, 2009 3:34am
This thread is really clearing up the subject of scaled trading for me.

Many thanks Superdezign, Daytrading and Leon!
  • #40
  • Apr 27, 2009 4:18am Apr 27, 2009 4:18am
Quoting CateFul
Losers average losers. Well said, PTJ, well said!

Dear CateFul,

Before taking sides with what looks to me like a very broad generalization, maybe it wouldn't be such a bad idea to consider the following points/questions.

What according to Paul Tudor Jones (the guy in the picture) constitutes a 'loser' might not be the fact that the price is simply moving into the opposite direction after the traders entry. In fact, how many traders can say that each of their positions always and straight after entry goes positive?

Secondly, if the trader has a position that leaves him room to increase (i.e. his/her initial position is only a fifth of his/her intended overall size), while he has a 100 pip stop (for example) and this position is let's say in the negative by 50 pips but the price on the chart is making a higher low (based on the low which his 100 pip stop is based on), then the position would not necessarily be a loser - and the trader could increase his position based on the notion that the new higher low is a confirmation of his/her original position (or assumption of his original trade idea).

To prove my point, here is a quote from Paul Tudor Jones' interview with Jack Schwager in the Market Wizards book. Page 123: "....and I was buying it every time it came down to the low end of that range."

His buy orders were at different levels - some above, some below his first buy....but all above a level he would definitely get out (should it go that low).

When a trade becomes a 'loser' is a very subjective matter depending on your style of trading, on your position size(s) and your capital vs. the time frame you trade as well. What on a 15min TF might look like a losing trade for one trader, is a minor retracement on a 4h chart for another - who might just add some more to his/her position.

regards
daytrading
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