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Pro's and Con's: Adding to losers / Dollar Cost Averaging
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Pro's and Con's: Adding to losers / Dollar Cost Averaging

  #1 (permalink)
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Pro's and Con's: Adding to losers / Dollar Cost Averaging

Hi guys,

Please vote and discuss in our latest poll:

Adding to a loser / dollar cost averaging?

 


What are the pro's and con's to adding to a losing position, or DCA / dollar cost averaging a position?

If you initially plan to scale in to a position, even if it goes against you, does that still count as adding to a loser or dollar cost averaging? Or since it is part of your plan to build a position, do you not consider that to be the case until after you've executed the complete trade and filled your entire position?

Mike

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  #2 (permalink)
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  #3 (permalink)
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I personally would never "scale in"/ "add to a loser"... If I was so sure of the execution I would of added the size when I entered. To me once you start losing and then trying to add pos size all your doing is catching falling knives. Now I would add to a winning position in a trend EX: price is making new high's then I would see adding if we making a new HL but adding to losers has never been something I could fully understand.


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  #4 (permalink)
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For my discretionary trading I do not add to a losing position, but for some of my automated strategies I do incorporate scale-in even if losing.

Specific example would be; two entries both valid positive expectancy - 1st an entry at close of bar (breakout style) - 2nd an entry at a specific pullback value. Both are able to be traded on their own, but together offer a smoother equity curve. I suppose you could technically say it is two separate systems and not a scale-in, but it does push the total position size up.

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  #5 (permalink)
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I think there are two separate issues here, and two actions that seem the same (because they are both adding to a position), but actually are very different:

1. Adding to a loser in the hope of turning it into less of a loss, or even a profit. This is pretty much a fear-based or denial-based action. We tend to get high-minded and moralistic lectures about not doing this, and probably it's a bad idea most of the time. The better idea is usually take your loss, realize it's a bad trade and don't make things worse.

2. Deliberately scaling in as a realistic strategy to improve your position in a good trade, whether the market is going against you in the short term or not. There are people who can actually do this, and part of what makes it possible for them is being able to identify when the trade is still good and when it is not. It also takes some capital and some nerve.

I know that option #2 exists because we (occasionally) see traders who are good at it. Inletcap did it all the time and made money. So did tigertrader and @Big Mike, back when he was trading and posting here. It's not the same as being unwilling to take a loss out of an emotional reaction, but is a thought-out, practiced strategy for getting into a trade. People who can do this do take their losses when the trade has been proven wrong, but they don't just use an adverse P/L as the only criterion, up to a point, at least.

For myself, I am too chicken, and also don't know how to do it, (and, honestly, am too likely to fall into category #1) and so I need to force myself to just close the thing and not let the loss continue. My basic point of view is also more to identify the trade and then reduce the amount of management I have to do. For me, too much thinking is already dangerous in a trade, and I don't want to add to my cognitive load. It's a matter of opting for simplicity.

So I voted for "Never scale-in, period." I don't think this is an absolute for all traders and all times, which it sounds like. I just don't think it's healthy, for me. If you can do it, power to you.

Bob.

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bobwest View Post
...
1. Adding to a loser in the hope of turning it into less of a loss, or even a profit. This is pretty much a fear-based or denial-based action...

Samething with the trader who places his stop loss just above or below the trigger bar since he is more at risk then the trader who places his stop loss at the right place.

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  #7 (permalink)
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Depends on the goal line...

I never scale into scalp trades where the targets and stops are small...I am either right or wrong and that is clear quite quickly. With trades that are aiming at a significant move from one "area" to another "area" not scaling in requires a perfect entry within that area which is hard to do with bigger dogs lurking around who love to catch smaller fish off guard. That is how the above mentioned traders made money scaling in...they focused on an area that if it provided support or resistance meant that their thesis still held water and they were willing to add to it.

Given my tiny account I am willing to add a second contract as price moves against me a little but always have a line in the sand based on PA levels that tell me I am wrong. Why not just wait till it hits that line in the sand? Because it doesn't always get there... a good area for buying or selling attracts many traders and the line is not exact.

The difference between scaling in and adding to a loser is VERY clear when a person is engaging in it (and I have done both). Scaling in has a somewhat nervous but anticipatory feeling to it....adding to a loser feels like you're being chased by a bear and looking for a tree to climb...

Craig

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Not all instruments are same

I donít think scaling logic applies the same way for all instruments. I like scaling into (short) VX futures when the volatility spikes keeping a close eye on the expiry. Also seasonal instruments like NG and Ags offer some decent opportunity for scaling in. On the other hand, stock index futures are my nightmare for scaling in. Just my 2 cents...

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trendisyourfriend View Post
Samething with the trader who places his stop loss just above or below the trigger bar since he is more at risk then the trader who places his stop loss at the right place.

I do this once I am up X amount of points due to the fact if we reverse this far then It would be wise to GTFO
Original s/l is normally near a swing point


0.02


-P

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Complicated question...


that really begs clarification.

Adding to a loser in a trading time frame, especially based on the original indication is a certain loser. If you "make" on the trade, the loss is that you reinforced a shit entry. Your method or your execution were still faulty and now you have "data" to support doing it again.

Conversely, pressing a winner, especially on subsequent new trade signals is absolutely critical, unfortunately it is often very difficult to learn and implement.

Most people, until they are extremely prolific, nurture their losers and kill their winners WAY too soon. Never wrong and afraid to be right is a disaster...for me the most difficult aspect of transition from market maker to retail trader.

Dan

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