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Attachments: why is everyone so afraid to average down?
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why is everyone so afraid to average down?

  • #141
  • May 25, 2010 8:20pm May 25, 2010 8:20pm
Quote
If 500 pips wipes out 95%......

So, all you successful martingaler's... what are some basic guidelines?? Example: double up every 200 pips??

I'm asking because I am most definetely NOT a successful martingaler
  • #142
  • May 25, 2010 8:43pm May 25, 2010 8:43pm
People who use averaging down or martingale are people that cannot accept losses because they cause to them a psychological trauma, they think like kids when they trade: I'm right! I'm right! The market is wrong! I can't lose! But they are trying to get money from the market, and if they don't adapt to it, they will never became profitable traders. Because they prefer to lose everything before lose a trade, and this is that always happens.
  • #143
  • May 25, 2010 9:28pm May 25, 2010 9:28pm
  •  onu
  • | Joined Feb 2006 | Status: superior senior member | 746 Posts
Quoting Trad3r
People who use averaging down or martingale are people that cannot accept losses because they cause to them a psychological trauma, they think like kids when they trade: I'm right! I'm right! The market is wrong! I can't lose! But they are trying to get money from the market, and if they don't adapt to it, they will never became profitable traders. Because they prefer to lose everything before lose a trade, and this is that always happens.
BS

---------------------------------------------
http://www.myfxbook.com/members/pc8multifx
  • #144
  • May 25, 2010 9:38pm May 25, 2010 9:38pm
Anyone that thinks Martingale is a sound strategy, I advise them to go and trade it live.

Why commit to strategies like Martingale? Hell, why commit to the market in a big way at all? (I.E. Position Trading, Swing Trading). Unless you have a couple mill to throw around? And even then, why?

Why not be flexible with the market? Currency trading is like the perfect girl if you look at it the right way, have fun, make money, don't commit. Make money going up, make money going down.

The market is flexible, if you are unyielding and trade against support and resistance, where ever it may form, the market is going to break you.

More entries, tight stop losses, well timed exits = More chances of being right, even though you will have some losers, and sometimes...Some big losers.

Committing against a trending market and adding to your losing position = Throwing all your money at one shot...Blowing your account.

Even if you throw all your money at one shot a couple times and are right, you are reloading that one shot and going at it again every time. All it takes is one miss to squander all your profit. You're going to miss.

Conversely, if you take many shots, you will miss some, but you will hit often as well. And in the end, with money management, you will end up profitable.

You don't just have to scalp to trade that way either.
Thank you Lux!
  • #145
  • May 25, 2010 9:51pm May 25, 2010 9:51pm
Quoting forexdave
So, all you successful martingaler's... what are some basic guidelines?? Example: double up every 200 pips??

I'm asking because I am most definetely NOT a successful martingaler
Here's my guidelines for martinglale: if you think about doing it, have someone kick you in the nuts.
  • #146
  • May 25, 2010 9:58pm May 25, 2010 9:58pm
Quoting Lonestar
Apples and oranges. What you did is world's apart from the proper way to handle it. If 500 pips wipes out 95% of your account you were way over leveraged and then using martingale is just stupid to begin with. Why not give examples that are applicable to the proper way of scaling into a position? All the "horror stories" on this thread for examples of why it's a bad idea are examples of people screwing it up. All that proves is if you don't what you're doing, don't do it!
You are pretty right. Which is why I stopped adding to losing trades.

Btw, I wonder what happened to this guy?
http://www.forexfactory.com/showpost...&postcount=117

He is definately averaging down/martingale/adding to losers. If he kept on with his trade, I can definitely see a huge -VE on his balance right now. It has only been 200 pips since his entry... surely it would be awesome if price starts to head up!! Or did he quit all his trades already because the pain was too great?

Hope you can come back and share some stories. Don't take it the wrong way, i'm not trying to ridicule or be overtly sarcastic. I just want to know how it is like to trade averaging down from others' standpoint who are doing it better than I used to do it.
  • #147
  • May 25, 2010 9:58pm May 25, 2010 9:58pm
Quote
Here's my guidelines for martinglale: if you think about doing it, have someone kick you in the nuts.

Yes Lonestar... I agree...
I just wanted to see if there's any guys actually doing it and actually making money (thanks for making me laugh with your comment)
  • #148
  • May 25, 2010 10:00pm May 25, 2010 10:00pm
Quoting pipmutt
Why bookmark it? Dollar amounts are all relative, we work in percentages, and in this context it shouldn't matter whose money it is or how much it is, why would it make any difference?
Clients don't like drawdowns. They like slow, steady growth without large swings in account equity. So the trading methodology that should be applied to "other people's money" is percentage based, just more conservative than someone trading a personal 100K account.

Conservative is the operating principle. As Winston Churchill put it, "If you're not Liberal when you're young you have no heart, if you're not Conservative when you're old, you have no brain" In trading the same is true, we start out with a passion and test many things, take greater risks, and then eventually settle into a routine that creates the least amount of disturbance for the maximum earnings.

If you've traded 40 full lots or higher, a 200 pip drawdown can be a nauseating experience. It's pretty much the sticker price on a new Lexus LS. Some people have the nerve for such outings, personally I don't. When there's real money on the table, it creates a diametric shift in how one trades (or should), and a more intense focus on getting the analytics right rather than cutting a wide bearth for error in judgement.

So, while it's easier to draw down when one is trading a smaller account, it's a completely different story as the stakes increase. Building the foundation of correct trading principles is essential as your equity grows. I know doblece is a responsible trader and as he/she put it, scaling in on a trade moving in the right direction is a workable method, so that's not what I was discussing when I intiailly posted.

The problem with this thread is people are talking cross purpose. The term "averaging down" covers too wide an area so can be interpeted many different ways.

I was responding to the concept of Martingale trading, picking tops and bottoms, and doubling down on losses. The issue with trading this way is it requires very deep pockets, and there is always that one time when the market doesn't come back around, a black swan event that wipes these traders out completely.

I hope this clarifies a bit better what I was trying to say.
  • #149
  • May 25, 2010 10:04pm May 25, 2010 10:04pm
Quote
When there's real money on the table, it creates a diametric shift in how one trades (or should), and a more intense focus on getting the analytics right rather than cutting a wide bearth for error in judgement.

Excellent post... yes... it's very easy to try a martingale strategy when you're paper trading and have nothing to loose. Once you've worked hard to build up your REAL account balance, it's hard to add to those loosing positions
  • #150
  • May 25, 2010 10:56pm May 25, 2010 10:56pm
Quoting Trad3r
People who use averaging down or martingale are people that cannot accept losses because they cause to them a psychological trauma, they think like kids when they trade: I'm right! I'm right! The market is wrong! I can't lose! But they are trying to get money from the market, and if they don't adapt to it, they will never became profitable traders. Because they prefer to lose everything before lose a trade, and this is that always happens.
This is laughable and not necessarily true in all cases.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #151
  • May 25, 2010 11:00pm May 25, 2010 11:00pm
Quoting forexdave
So, for people who use this method... how often do you add to your loosing positions?? (example: every 50 pips)
You're not 'adding to a losing position' by averaging down if you are building a position with predefined risk. The trade isn't a loser until it reaches a predefined point where your trade idea is wrong. Your wording shows you have different mindset and do not see the trade in the same way since you are thinking a trade is a loser because it is in drawdown.

Now for the scalpers in the crowd a drawdown may equal a loser, but not necessarily for the swing or position trader.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #152
  • Edited 11:54pm May 25, 2010 11:50pm | Edited 11:54pm
Quoting forexdave
So, all you successful martingaler's... what are some basic guidelines?? Example: double up every 200 pips?
The live trading screen of a hedging adapted Martingale is here. Entries are based on 160 pips and exits are managed by the EA using TS and group profit on each pair traded. Tiny lots, 10k+ balance, low dd. It's done ok for a few years.
Do not focus on making money; focus on protecting what you have.
  • #153
  • May 26, 2010 12:25am May 26, 2010 12:25am
Quoting LasVahGoose
You're not 'adding to a losing position' by averaging down if you are building a position with predefined risk. The trade isn't a loser until it reaches a predefined point where your trade idea is wrong. Your wording shows you have different mindset and do not see the trade in the same way since you are thinking a trade is a loser because it is in drawdown.

Now for the scalpers in the crowd a drawdown may equal a loser, but not necessarily for the swing or position trader.
Nicely summed up.
Enter Signature
  • #154
  • May 26, 2010 1:25am May 26, 2010 1:25am
Quoting LasVahGoose
You're not 'adding to a losing position' by averaging down if you are building a position with predefined risk. The trade isn't a loser until it reaches a predefined point where your trade idea is wrong. Your wording shows you have different mindset and do not see the trade in the same way since you are thinking a trade is a loser because it is in drawdown.

Now for the scalpers in the crowd a drawdown may equal a loser, but not necessarily for the swing or position trader.
According to my understanding of martingale strategy, you increase your position in hopes of at least breaking even. In other words; adding to a losing position. I don't see why a well capitalized position trader would even find this a necessary technique. Because, assuming you are in a drawdown, your position is necessarily not losing in the first place.

Therefore I see what you are saying, and agree with it. The difference is I don't see adding to your position (when it comes to position/swing trading) during your accepted and predetermined drawdown, as true averaging down, or a martingale strategy. This is because as a position trader, during drawdown your position may not yet be classified as losing, depending on your time frame and capitalization.

However, a scalper loading on lots, or the under-capitalized day trader has a lot tougher decision that must be made quickly as to whether they are merely drawing down or in a losing position.

In my final analysis, being flexible is still better than committing to a losing position, because as a scalper/day trader it is too risky, as a swing/position trader, true martingale strategy isn't necessary. And is actually even riskier, just takes more time to develop, win or lose.

When the market makes a decision against your draw down and you take your loss, you can always find an entry going with the market and recoup your loss and become profitable. Or you can find a better price back in the direction you were originally going in, and not have to suffer a spike that eats unduly your account.

Spikes and reversals have different definitions and behave quite differently according to your time frame however.
Thank you Lux!
  • #155
  • May 26, 2010 3:41am May 26, 2010 3:41am
It's never made sense to me that people can describe Martingale 'systems' as 'profitable' or 'unprofitable'.

Every martingale is 100% guaranteed to be profitable..... until it's suddenly not.
  • #156
  • May 26, 2010 4:02am May 26, 2010 4:02am
Quoting ScalpOrDie
Hell, why commit to the market in a big way at all? (I.E. Position Trading, Swing Trading). Unless you have a couple mill to throw around? And even then, why?
What does capital amount have to do with it? I assume you're challenging profitability of slower trading against faster trading, but the fact is that profitability depends on the trader, not the timeframe.

Position traders can be flexible, and time it takes to build, close, or reverse a position vary significantly. It may take days (or less), or weeks (or more).

Having a good idea of the direction of the market is a massive advantage, one that I think minimises the difference in profitability between fast and medium timeframes.

Position traders do not necessarily use loose stops. I use loose and tight, loose to ensure a position, and tight to magnify profits and build a large position quickly.
  • #157
  • May 26, 2010 4:54am May 26, 2010 4:54am
Quoting forexdave
So, for people who use this method... how often do you add to your loosing positions?? (example: every 50 pips)

Also, what time frame are you mostly using??

I'd like to hear from people who are successfully using this strategy
hey dave.... even though i intensely disagree with the video posted earlier , will openly admit it contains some truth and is well worth watching....

//----

a good example of averaging down is seen in my teamsky link above.... he is precise and controlled.... look at his trades closely.....check his results.....

and again, he is pricise but more importantly he is controlled.....

//---

the risk in averaging down is similar to the risk in sordid affairs..... what's easy to start is often hard to stop......h
to trade and code, keep both simple... no call to impress....h
  • #158
  • May 26, 2010 6:14am May 26, 2010 6:14am
Quoting Mr J
What does capital amount have to do with it? I assume you're challenging profitability of slower trading against faster trading, but the fact is that profitability depends on the trader, not the timeframe.

Position traders can be flexible, and time it takes to build, close, or reverse a position vary significantly. It may take days (or less), or weeks (or more).

Having a good idea of the direction of the market is a massive advantage, one that I think minimises the difference in profitability between fast and medium timeframes.

Position traders...
First and foremost: I'm not primarily a position trader. Yet I do enter position trades. Yes, I suppose part of my argument is fast vs slow development of a trade. You ask me what capitalization has to do with it? Everything. Define tight stops, within the framework of a position trade, define tight stops within the framework of an intraday trade?

From my experience with position trading if you are trading weekly 100 pips is a tight stop. For instance, I entered a weekly position trade of short AUD/USD on 5/12 at .8920. The next day a tiny spike (on the daily time frame, that's what news releases are for) hit my 100 pip SL at .9020. (Which sucked cause it topped out at .9025 I believe.). I had to take that loss and re-enter. If I hadn't had such a "tight stop" I would've absorbed a draw down until it went down like I knew it would.

If you have a good system for position trading weekly and daily with a stop loss of less than 50-100 pips I would absolutely love to have you share it with me. I am not being sarcastic or rude saying that here either. I'm serious.

For someone who is not capitalized, and most beginning traders are not, 100 pip SLs are not feasble. Heck, 100 pips isn't a draw down, it is a loss. Unless you want to trade .10 cents a pip. And yes you will learn how to trade the market, but if you are not capitalized to make money trading on the higher time frames and you cannot absorb the SL hits you definitely won't be profitable.

From this perspective, why commit to a long trade (when you are not seriously capitalized) when there is ample movement within every daily and weekly bar? Make money up, make money down. Although I was exaggerating when I said it is not worth it to position trade unless you have millions to throw around.

Personally I am a lot better at timing the 20-50, and sometimes 100 pip moves within the hours and minutes than I am figuring out whether there will be a spike that stops out my SL on the daily and especially weekly charts. Who can predict the spikes? Making 20-50-100 pips a couple times a day and magnifying your gain by trading multiple lots seems to me a lot better than sitting around and waiting for weekly or daily to develop. Though with proper money management, daily and weekly trading is a great supplement to intra day trading.

I do not consider myself under capitalized generally, but I do consider myself under capitalized to be able to match the profits I make intra-day trading and scalping from daily and weekly position trading.

Being flexible allows you to jump on the market any which way it trends intra-day. Cutting your losses, taking your profits depending on the price action of the market. Getting back in and doing it all over again. If you are good at entry and not greedy at exits there is plenty of money in that.

I am not knocking position or swing traders at all, obviously that style has proven to be tremendously profitable. And as I earn a level of capital from the market that I can put towards position and swing trading, enough so that I would really profit from it like the bigger dogs than I do. Once I can profit from daily and weekly trading beyond simply supplementing my trades with it, and enjoy larger SLs instead of sometimes funding my tight daily and weekly stop hits partially with profits from my intra day trading; I intend to do so.

Really I am just sharing my opinion on the styles of trading and their pros and cons, however there is merit in being flexible in a constantly shifting market.

I hope this clarified what I wrote earlier, I'm kinda tired so excuse me if my post is not entirely cogent.
Thank you Lux!
  • #159
  • May 26, 2010 9:30am May 26, 2010 9:30am
It is interesting that nobody mentioned that "averaging down" is nothing more than money management.
A succesfull trader knows very well that money management is only a way of protecting the capital and correctly applied smoothes the profit curve but by itself can't increase the edge. MM will never turn a losing system into a profitable one and this assertion can be mathematically proved.
Therefore, if someone's approach is sound, he's going to profit in both cases, with a fixed amount invested or averaging down.

Topics like "How averaging down changed my life and it can change yours, too!" will appear as long as some members will share the opinion that MM is the edge of their system or that random entering can be a profitable strategy.
  • #160
  • May 26, 2010 9:36am May 26, 2010 9:36am
Quoting Why Oh Why
The live trading screen of a hedging adapted Martingale is here. Entries are based on 160 pips and exits are managed by the EA using TS and group profit on each pair traded. Tiny lots, 10k+ balance, low dd. It's done ok for a few years.
Long from 1.222 and above. 1 short from 1.223. This account only trades EU and is similar to above but with entries every 20 both directions.

http://pcinternational.co.uk/wp-cont...05/eurusd3.gif

Do not focus on making money; focus on protecting what you have.
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