Averaging Down | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Averaging Down - Is It Really That Bad? 39 replies

'Averaging Down Is for Losers' - valid or not? 27 replies

Fast Averaging versus Slow Averaging 1 reply

Averaging Down with Support & Resistance 12 replies

Martigale and Averaging Down 4 replies

Attachments: Averaging Down
Exit Attachments

Averaging Down

  • #1
  • First Post: Sep 16, 2008 3:37pm Sep 16, 2008 3:37pm
Today, on GY, I learnt all about averaging down.
The hard way.
Why are lessons always so expensive?
  • #2
  • Sep 16, 2008 4:01pm Sep 16, 2008 4:01pm
Quoting Interceptor
Today, on GY, I learnt all about averaging down.
The hard way.
Why are lessons always so expensive?
The answer to this is simple: It's ego.

It was your ego that wouldn't let that trade end as a loss. Sooner or later, you found that it was too painful to be in it any longer, at any cost. Sucks, but that's one way to learn it.

The is not a criticism, (I'm sure someone will come along and do that soon enough.) it's a observation. From experience.

Clockwork
  • #3
  • Sep 16, 2008 4:02pm Sep 16, 2008 4:02pm
Quoting Interceptor
Today, on GY, I learnt all about averaging down.
The hard way.
Why are lessons always so expensive?
It would seem the only lessons worth learning are the ones you pay for. I wish I could say I could learn without them, but I can't. I learned that same lesson the same way you did. Hang in there, keep trading and come on back to the camp of SLs.
  • #4
  • Sep 16, 2008 4:21pm Sep 16, 2008 4:21pm
There are ways of averaging down for effect. But mostly it's done badly and just results in the mother of all losses.

Sometimes you can spot the right opportunity that justifies averaging down. It's not a beginner's technique, though.
The market reveals who we really are...
  • #5
  • Sep 16, 2008 7:26pm Sep 16, 2008 7:26pm
shadowninja,

any posts which point to the right way of avering down?


clockwork,

dont have to be ego at all......
sometimes you want to try out a system and it just doesn`t work.
  • #6
  • Sep 16, 2008 7:32pm Sep 16, 2008 7:32pm
Posts?

Basically, if you're in a loss but your reason for being in the trade is still valid then you could take the signal again at a "cheaper" price. This is a form of averaging down.
The market reveals who we really are...
  • #7
  • Sep 16, 2008 8:03pm Sep 16, 2008 8:03pm
To average down if your system is SL based is a recipe for disaster. An AD system uses low leverage, doesn't rely on pinpoint entries and trades with the prevailing trend.
  • #8
  • Sep 17, 2008 6:58pm Sep 17, 2008 6:58pm
Quoting Interceptor
Why are lessons always so expensive?
They are expensive to make sure you don't make them again. Harsh but true
  • #9
  • Sep 17, 2008 9:00pm Sep 17, 2008 9:00pm
Interceptor.. I average down, but it's a necessity in one of my trading setups. The r:r stil has to be good and the high percentage of profits on the specific setup justifies it. Also, the setup is pure price action, and the exit for a loss is the reverse pure price action with an emergency s/l for those days when someone goes backrupt and it hits the market quickly .

It works very nicely $$ but took a long time to get it just right and knowing when to do it and what the exact exit is.

Correlation of what happened when a trade setup goes wrong and when a trade setup goes right and evaluating it afterwords is well worth the time.
DireXiv Make it happen, no one else is going to do it for you...
  • #10
  • Sep 17, 2008 9:38pm Sep 17, 2008 9:38pm
Quoting yonnie
shadowninja,

any posts which point to the right way of avering down?


clockwork,

dont have to be ego at all......
sometimes you want to try out a system and it just doesn`t work.
Well the first thing I would say is that if it's to try out a system....that's what demo accounts are for - less painful too!

Some of the others have said that there are ways to average down and trade. I am going to regret saying this because it's dangerous advice....but this IS true. It's all about leverage....or better yet - the lack of it.

If you average down, go with the trend....and play several SMALL positions. It's not my cup of tea, but it can be done.

Clockwork
  • #11
  • Sep 18, 2008 3:57am Sep 18, 2008 3:57am
The conclusion, therefore, is that when you're beginning to learn to trade and are yet to make it consistent, do NOT average down. Focus on getting the entry right in the first place. Learn to accept that you can be wrong and that trading is a "numbers game".

Once you have traded long enough, you will start to spot opportunities when averaging down is a highly profitable activity that seriously increases your reward:risk ratio. Until then, forget about how much money you can make; worry about how much money you can lose.
The market reveals who we really are...
  • #12
  • Sep 18, 2008 5:42am Sep 18, 2008 5:42am
Not to worry Interceptor,we all make mistakes.That's part of life.
Just don't repeat the same mistake twice and you'll progress.
I read a thread a little while back that stuck in my mind and I'm sure twoblink won't mind me sharing.Its the illustrations that drive the point home.
Below is a link to the post.Enjoy.

http://www.forexfactory.com/showpost...3&postcount=17

Take it easy.
  • #13
  • Sep 18, 2008 5:49am Sep 18, 2008 5:49am
Thank you all.
I'm thinking that the present market conditions are probably the worst in living memory for averaging down.
Every day I see a new black swan fly past my window!
  • #14
  • Feb 26, 2011 12:30am Feb 26, 2011 12:30am
For a long time I took the advice to not average down and to use stop losses to stop a losing trade. All that happened was that I got stopped out of a lot of trades that would have turned profitable. Now, I enter with a much smaller lot size and average down. However, I only trade with the prevailing trend. I never average down into a counter trade. Of course, I have a set limit as to how much $$$ I am willing to lose in any trade. When I hit that point then I am out. My limit is a very small portion of my trading funds. This might not work for everyone, but it works for me or I would not do it.
  • #15
  • Feb 26, 2011 1:02am Feb 26, 2011 1:02am
Averaging down killed my forex career...twice.

I'll never do it again.
  • #16
  • Feb 26, 2011 2:22am Feb 26, 2011 2:22am
Quoting wallstrtmn
For a long time I took the advice to not average down and to use stop losses to stop a losing trade. All that happened was that I got stopped out of a lot of trades that would have turned profitable. Now, I enter with a much smaller lot size and average down. However, I only trade with the prevailing trend. I never average down into a counter trade. Of course, I have a set limit as to how much $$$ I am willing to lose in any trade. When I hit that point then I am out. My limit is a very small portion of my trading funds. This might not work for...
Your mindset is probably more closely related to the 'scaling in' principle as opposed to the averaging down principle which like martingaling usually ends with a spectacular blowout. Scaling in is perfectly fine provided the overall picture (combination of the trades) is built to 1 initial position with managed risk. No one can say for sure where turning points are, when breakouts will work etc so staggering a few orders around an area that you are looking to trade isnt uncommon and is perfectly logical. Sometimes you will get a full position in play, sometimes you will have a slightly smaller position as the market didnt come/go all the way to executing all the limit orders you had.

Averaging down is just a persons way of saying, I trust my own judgement more than the markets information and when it works that way it can be very profitable with a number of positions working to lower the price of your initials, however like martigaling there will be the times when the market just doesnt give a hoot about your massively exposed positions, the margins that are just shrinking and shrinking until you get that auto close out and go through the emotions that the thread starter went through. It is a rookies mistake that when it works it fuels the ego making it a very dangerous approach.

RT
  • #17
  • Feb 26, 2011 3:00am Feb 26, 2011 3:00am
Quoting fxpipper
Averaging down killed my forex career...twice.

I'll never do it again.
It's possible the career would have been killed more than twice if you did not use averaging down.

If you are now more succesful it could be that you are now simply better at trading and not necessarily because you have stopped averaging down.

Personally, I think 'anything' is better than a direct stop loss in forex.

I have paid dearly sometimes, but I still average down. I'm also getting better at it.

King.
  • #18
  • Feb 26, 2011 3:09am Feb 26, 2011 3:09am
Great thread.. I rarely post on forums, but let me just say that "averaging down" or "scaling in" with proper money management was probably the biggest turn around for me over the last few years.. Strict stop losses and cutting trades might work for some, but never did for me. Smaller trades with the capacity to add to positions later consistently work for me instead.

Quoting Razor_trader
Your mindset is probably more closely related to the 'scaling in' principle as opposed to the averaging down principle which like martingaling usually ends with a spectacular blowout. Scaling in is perfectly fine provided the overall picture (combination of the trades) is built to 1 initial position with managed risk. No one can say for sure where turning points are, when breakouts will work etc so staggering a few orders around an area that you are looking to trade isnt uncommon and is perfectly logical. Sometimes you will get a full position in...
  • #19
  • Feb 26, 2011 3:13am Feb 26, 2011 3:13am
Averaging down is still working, but you need to look at your time frames.. if you are getting blown out of the water it means either your lots are too large, or else the time frames you are using are too small.. try taking things on a larger scale.
Low volatility and strange conditions, or taking the wrong direction do make the method harder to use.. or just longer for a play to finish, but they still come out eventually. I was in a (bad) EUR/USD trade in November which finished in December, but it did finish several hundred pips ahead on exit.


Quoting Interceptor
Thank you all.
I'm thinking that the present market conditions are probably the worst in living memory for averaging down.
Every day I see a new black swan fly past my window!
  • #20
  • Feb 26, 2011 3:36am Feb 26, 2011 3:36am
You have to average up/down "intelligently" in order to make a lot of money in FX. I used to do things like average in during a major break out...which is totally crazy......but at the time, I had no idea that I was in a major break out .

Unfortunately, you will never be able to do well in FX unless you have mastered the art of fading your position. You will get killed in FX if you go all in at once due to its high volatility...so your only choice is to average up/down. You will win doing it this way, but you will also lose big at times....that's trading.
0 traders viewing now