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  • #1,281
  • Apr 29, 2012 7:36am Apr 29, 2012 7:36am
Quoting Turveyd
If you read above, that will become 100% clear.

i've just added some bits to.
every time you average down you
1) increase position size
2) you bring your average market price 50 lower due to increase exposure your s/l comes closer to market as well


your average losers increase in relation to your average winners. thus giving you a negative mathematical expectation.

the only way this CAN work is with a fix threshold of let say $50 and your average winners are >$50

entry A at 1.3250 goes against you to 1.3220 with desired position size of one mini lot. you take 1/2 entry 5000= $0.50/ pip movement (for simplicity in calculations sake)

position A is now -$15 under water
open position B at 1.3220 is average price of (1.3250+1.3220)/2= 1.3235
1.3235-1.3220= 15 pips so we agree that is the same as a full mini lot entry at 1.3235 being 15 pips underwater.

your s/l needs to come up to accommodate to limit risk exposure

where before your s/l was 1.3150
NOW it should be 1.3185

to keep your risk capped at $50 dollars otherwise you are just increasing risk as the market continues going against your position.

and again you are not listening to what i am saying.


we agree that best case scenario win rate $ needs to be > worst case scenario $ loss.

average winners have to > average losers to have positive mathematical expectation.

assuming markets are random on large sample space you have to maintain the house edge.


so when you are in profit you HAVE TO find a way to AVERAGE UP effectively and THIS IS where most people have psychology issues.
AVT INVENIAM VIAM AVT FACIAM
  • #1,282
  • Apr 29, 2012 7:43am Apr 29, 2012 7:43am
Quoting the redlion
so how do you deal with exponential risk exposure with averaging down?
I think averaging, or scaling into a trade, is reasonable, within a well defined window. For example, If I think price is likely to change direction as a bounce off of a S/R level or it is showing signs of exhaustion, I will do a little bit of averaging in...if it moves 10 pips past I will add a position, another 10 pips I will add another position, but if it moves beyond a certain point I will shut the whole thing down. Its useful because you can end up with a much better position overall, and if you are using a support/resistance style of trading, this can make a big difference. Just having a really good entry(which you can end up with by averaging in) can make a big difference psychologically as well...makes it a hell of a lot easier to stay with a trend or 'let your profits run' as they say.

But, having a 'well defined window' for you averaging in is the most important part.....just doing it indefinitely without a clear cutoff point is, as you and others have pointed out, a recipe for disaster.
  • #1,283
  • Apr 29, 2012 7:43am Apr 29, 2012 7:43am
Quoting knoholygrail
I just used one of your old posts on the thread that I post on most of the time. Thanks for your thoughts on this subject that are similar to my own thoughts.

http://www.forexfactory.com/showthre...59#post5619359
I have since changed my views Kno

most of the things i say are true but the money management makes no sense that way.

i am now somewhere where Rigidity of fixed s/l and t/p have to do not with arbitrary numbers

but with current and statistical market volatility to create a capped risk exposure and maintain positive expectation.


you see with FTI skews of attack and rescues, the risk exposure grows exponentially, and that way of trading does horrible under random market conditions because it actually works under the assumption that you can PREDICT the overall direction.

THE VERY THING that I believe to be detrimental, the predicting factor.


kno if it worked, I would keep doing it.


I am no expert and I am still attempting to define what works in regards to
Risk Management.
AVT INVENIAM VIAM AVT FACIAM
  • #1,284
  • Apr 29, 2012 7:45am Apr 29, 2012 7:45am
Quoting the redlion
so how do you deal with exponential risk exposure with averaging down?
so is your entry based on a zone ,and for fear of maybe waiting for an ideal entry you maybe missing an entry you enter earlier than you like,

if your buliding positions within your entry zone why wouldnt you build positions as the trade progresses in your favour,limiting your initial risk for failed trades,

it seems your not adding to loosing positions for the sake of getting b/e on failed trades, ?

sorry red lion wrong quote came up,my questions are intended for turveyd.
  • #1,285
  • Apr 29, 2012 7:47am Apr 29, 2012 7:47am
Quoting the redlion
every time you average down you
1) increase position size
2) you bring your average market price 50 lower due to increase exposure your s/l comes closer to market as well


your average losers increase in relation to your average winners. thus giving you a negative mathematical expectation.

the only way this CAN work is with a fix threshold of let say $50 and your average winners are >$50

entry A at 1.3250 goes against you to 1.3220 with desired position size of one mini lot. you take 1/2 entry 5000= $0.50/ pip movement (for simplicity in calculations...

1. thats allowed for.
2. The market is lower, my averaging does not change my SL Exit point. My 2nd position has a greater chance of hitting the SL, but it's worth it for 1/2 the cost.


I have a 70%-80% area win rate and a 1.3:1 average R:R.

My Risk is capped, currently $4 + $2 = $6 thats how I trade, I lose I lose 60pips for a 40pip move.

Averaging up is seriously a losers game, yes the market is going your way for once, but allowing for randomness, what is to say the market won't change direction on you, allowing for natural ranges the odds are it will do, and you'd have to again increase your SL to keep your risk the same.

Interesting how averaging down is seen as bad practice but averaging up which is basically suicide in most cases is viewed as being the correct way to go.

The head games played to make us lose our money, are really well done you've got to give the big boys that, plant it in the minds of a few traders and via the internet they'll drag everyone else down with them.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,286
  • Apr 29, 2012 7:49am Apr 29, 2012 7:49am
Quoting Aldente
I think averaging, or scaling into a trade, is reasonable, within a well defined window. For example, If I think price is likely to change direction as a bounce off of a S/R level or it is showing signs of exhaustion, I will do a little bit of averaging in...if it moves 10 pips past I will add a position, another 10 pips I will add another position, but if it moves beyond a certain point I will shut the whole thing down. Its useful because you can end up with a much better position overall, and if you are using a support/resistance style of trading,...
exactly... YOUR THRESHOLD needs to be well defined and if you are averaging down to accommodate for error. YOU MUST average up to maximize profit as well.

and you MUST maintain positive expectation.

at least as i currently see it... and under the model I am currently working on
AVT INVENIAM VIAM AVT FACIAM
  • #1,287
  • Apr 29, 2012 7:50am Apr 29, 2012 7:50am
Quoting Aldente
I think averaging, or scaling into a trade, is reasonable, within a well defined window. For example, If I think price is likely to change direction as a bounce off of a S/R level or it is showing signs of exhaustion, I will do a little bit of averaging in...if it moves 10 pips past I will add a position, another 10 pips I will add another position, but if it moves beyond a certain point I will shut the whole thing down. Its useful because you can end up with a much better position overall, and if you are using a support/resistance style of trading,...

I'm not alone, well said sir

The ownly downside is when you get position #1 in and thats it takes off, you wished it would of filled more positions to double / triple your profit.

But hey nothing is perfect.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,288
  • Apr 29, 2012 7:52am Apr 29, 2012 7:52am
Quoting the redlion
exactly... YOUR THRESHOLD needs to be well defined and if you are averaging down to accommodate for error. YOU MUST average up to maximize profit as well.

and you MUST maintain positive expectation.

at least as i currently see it... and under the model I am currently working on

Absolutely NEVER or pretty much never, we need to talk about this in more detail, very early on maybe.

Ever heard to expression don't chase your trades, your 2nd higher position is very likely chasing.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,289
  • Apr 29, 2012 7:56am Apr 29, 2012 7:56am
Quoting diceman555
so is your entry based on a zone ,and for fear of maybe waiting for an ideal entry you maybe missing an entry you enter earlier than you like,

if your buliding positions within your entry zone why wouldnt you build positions as the trade progresses in your favour,limiting your initial risk for failed trades,

it seems your not adding to loosing positions for the sake of getting b/e on failed trades, ?

sorry red lion wrong quote came up,my questions are intended for turveyd.

Rule #1 it's not a losing position until it hits the SL or I close it at a loss ( margin call maybe to )

What goes not between Open to Close + or - is what goes on, If I see a chance to get in for 1/2 the risk with more upside it's illogical.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,290
  • Apr 29, 2012 7:56am Apr 29, 2012 7:56am
Quoting Turveyd
I'm not alone, well said sir

The ownly downside is when you get position #1 in and thats it takes off, you wished it would of filled more positions to double / triple your profit.

But hey nothing is perfect.
either I am

sleepy
cant understand you well enough
or I am not being clear.

100 winners at $50 dollars is + $5000
100 losers at $60= -$1000

over 200 trades you are down 1000

to be net positive

your loser should lose <5000 in 100 trades

unless i am doing my math wrong.

so averaging down is not BAD on itself but the RISK HAS TO BE CAPPED in a way to have net positive gains

so with increased average entries your risk INCREASES your S/L on the overall position comes CLOSER to market.

unless I am wrong... and if I am please correct me
AVT INVENIAM VIAM AVT FACIAM
  • #1,291
  • Apr 29, 2012 8:00am Apr 29, 2012 8:00am
Quoting Turveyd
Rule #1 it's not a losing position until it hits the SL or I close it at a loss ( margin call maybe to )

What goes not between Open to Close + or - is what goes on, If I see a chance to get in for 1/2 the risk with more upside it's illogical.
again unless i am mistaken if that is the case please correct me.

in order to meet the target of >$50 dollars when you INDEED have the direction right. You need to increase your position in the market to actually meet that target. otherwise when you are right you make half of what you risk when wrong.

keep in mind the daily volatility WILL not change for you

we are still talking about eur/usd with 77-150 pip daily range on average.
AVT INVENIAM VIAM AVT FACIAM
  • #1,292
  • Apr 29, 2012 8:03am Apr 29, 2012 8:03am
Quoting the redlion
either I am

sleepy
cant understand you well enough
or I am not being clear.

100 winners at $50 dollars is + $5000
100 losers at $60= -$1000

over 200 trades you are down 1000

to be net positive

your loser should lose <5000 in 100 trades

unless i am doing my math wrong.

so averaging down is not BAD on itself but the RISK HAS TO BE CAPPED in a way to have net positive gains

so with increased average entries your risk INCREASES your S/L on the overall position comes CLOSER to market.

unless I am wrong... and if I am please correct me
Where are you getting the +$50 and -$60 from ??

My average profit is 30% above my risk so -$60 +$80.

But I'm getting 70-80% profit rate.

So +80 +80 -60 = +$100 over 3 trades. ( we will assume 66% )

getting there yet ??
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,293
  • Apr 29, 2012 8:07am Apr 29, 2012 8:07am
Quoting the redlion
again unless i am mistaken if that is the case please correct me.

in order to meet the target of >$50 dollars when you INDEED have the direction right. You need to increase your position in the market to actually meet that target. otherwise when you are right you make half of what you risk when wrong.

keep in mind the daily volatility WILL not change for you

we are still talking about eur/usd with 77-150 pip daily range on average.

My risk is 60pips, I still get 90pips moves from the 1st position without the 2nd position being hit and filling, the 1.3:1 R/R, profit is profit, if the 2nd postion doesn't fill I don't lose sleep over it.

If does screw up the basic R:R maths ofcourse cause it's a variable, but no big deal.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,294
  • Apr 29, 2012 8:07am Apr 29, 2012 8:07am
Quoting Turveyd
Where are you getting the +$50 and -$60 from ??

My average profit is 30% above my risk so -$60 +$80.

But I'm getting 70-80% profit rate.

So +80 +80 -60 = +$100 over 3 trades. ( we will assume 66% )

getting there yet ??
I get my target from statistical studies
average RoR's

and volatility readings

Attached Image (click to enlarge)
Click to Enlarge Name: histogram of AHR.jpg Size: 25 KB


Attached Image (click to enlarge)
Click to Enlarge Name: histogram ALR.jpg Size: 25 KB


Attached Image (click to enlarge)
Click to Enlarge Name: histogram of ATR.jpg Size: 25 KB


targets HAVE TO be realistic
AVT INVENIAM VIAM AVT FACIAM
  • #1,295
  • Apr 29, 2012 8:15am Apr 29, 2012 8:15am
Quoting the redlion
I get my target from statistical studies
average RoR's

and volatility readings

Attachment

Attachment

Attachment

targets HAVE TO be realistic

I don't have / believe in targets, I get what the market gives me and say thanks holding out for more negative affects my win % rate.

I get some 200pip moves and some 20pips moves, but 1.3:1 R:R.

I move SL up to, when in profit and cancel the 2nd position at times so my Risk drops on some trades to.

Targets require prediction, I don't believe prediction is possible.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,296
  • Apr 29, 2012 8:18am Apr 29, 2012 8:18am
Quoting the redlion
I get my target from statistical studies
average RoR's

and volatility readings

Attachment

Attachment

Attachment

targets HAVE TO be realistic
If I get a good uptrend, I can and will hold for days.

Most trades go to small profit and thats fine, then the more trades you make the better the odds on a trade having a good run and when in a good run I can whack the SL up into profit and leave it be.

I have a chop system to, prefer the trend but needs must when the market is flat as.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,297
  • Apr 29, 2012 8:20am Apr 29, 2012 8:20am
Quoting Turveyd
I don't have / believe in targets, I get what the market gives me and say thanks holding out for more negative affects my win % rate.

I get some 200pip moves and some 20pips moves, but 1.3:1 R:R.

I move SL up to, when in profit and cancel the 2nd position at times so my Risk drops on some trades to.

Targets require prediction, I don't believe prediction is possible.
so now statistics hold no water?

ok i will disagree with you now and continue studying my class on
binomial distributions, discrete random variables and how to assign probability distributions, to then compute expected returns and Sigma of assets...
i find it a little more productive.
AVT INVENIAM VIAM AVT FACIAM
  • #1,298
  • Apr 29, 2012 8:27am Apr 29, 2012 8:27am
Quoting the redlion
so now statistics hold no water?

ok i will disagree with you now and continue studying my class on
binomial distributions, discrete random variables and how to assign probability distributions, to then compute expected returns and Sigma of assets...
i find it a little more productive.

The very statistics you've got will clearly indicate that statistics don't always work, I don't know what entry model your trying to build but to my entry model I see no way to assign fixed TP to anything.

Statics give a clue to a possible out come, nothing more, I think your getting abit to carried away there, and I'm a math's stat's guy to, just not at your level.

Is it working for you yet ?? are you making a profit ?? that at the end of the day is all that counts, agreed ??



Got to go out, enjoy studying!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #1,299
  • Apr 29, 2012 8:31am Apr 29, 2012 8:31am
Quoting Turveyd
Where are you getting the +$50 and -$60 from ??

My average profit is 30% above my risk so -$60 +$80.

But I'm getting 70-80% profit rate.

So +80 +80 -60 = +$100 over 3 trades. ( we will assume 66% )

getting there yet ??
well, as long as averaging down works for you and you can increase your account consistently, then you are doing fine.

However, if you have trouble increasing your account, then you should change your approach.
  • #1,300
  • Apr 29, 2012 8:46am Apr 29, 2012 8:46am
Quoting Custos
well, as long as averaging down works for you and you can increase your account consistently, then you are doing fine.

However, if you have trouble increasing your account, then you should change your approach.
Having no issues at all increasing the account.


Merely trying to undo the myths about averaging down and disprove averaging up while im at it.

On the basis that simple change will likely turn a lot of people frim slightly negative to positive.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
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