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I'm sure you've spoken about this topic a little in your room so apologies if you're repeating yourself with an answer to these questions.
I can certainly see a benefit to asymmetric returns and a methodology to recover losses when your thesis is still in play but your entry is too soon however I don't think you've gone into detail on this thread yet regarding a few crucial points that I want to question you here on.
- What was your minimum capital requirements before you started employing this strategy of averaging down on your positions?
As you're kindly offering your strategy on a retail forum, there will be a large variance of account sizes from trader to trader here and for some of the smaller accounts; obviously an averaging strategy on a original position that may have a stop that takes out 2/3% of their position could be catastrophic when continuing to add against their original position or widen their stops. Especially taking into account a lot of traders here are still attempting to find their edge, define their edge and stick to it. Thus making building a solid 2/3 hypotheses each day as still, a work in progress.
I say this as I totally agree with you on the subject of remaining in a position until your thesis is proven wrong, however a lot of folks here quite honestly won't be building solid theses on the basis of a lack of knowledge surround market context and how to build solid daily trading plan.
Bit of a ramble here, however I do feel it's important for some to focus on building solid hypos to formulate a trade strategy that they can stick with and to know when you have a large enough account to start employing an asymmetric strategy.
- When you're averaging down and perhaps in a high vol environment that has made large range/volume swing fractals, how are you keeping tabs with how much you are risking $ wise and how much you are willing to risk until your thesis is proven wrong?
- Are you calculating before entering the original position how much % wise of your capital you're willing to risk whilst averaging down and finding the price where you're thesis is proven wrong?
- How are you monitoring your PnL and average price when price moves against you?
- How do you determine how many contracts you'll average until your thesis is proven wrong?
- Do you take off the added contracts off when price moves in your favour to work out of your losing position?
Sorry for all the questions! I'm sure a lot of them would be answered if I attended your trading room however it's a little late for me over in Australia.
I really do respect what you're doing and think that you are offering a great service sharing your thoughts to this forum and admire you're transparency with your strategy. I only have questionable concerns about sharing and inspiring others to acquire your high risk/high returns strategy for some of us here with smaller accounts.
Keep doing what you're doing though!
@Zefi
Sorry for interjecting here, just wanted to add balance - @rocksolid68 does average up (iirc 2 days ago as an example), so its not all adding to positions which are offside. Once confident in your win/loss stats then averaging down or up will be natural progression, imo.
Besides, if you half your original position (assuming this is possible), then average down (improving your position average):
~ there is now an improvement in your trade
~less additional risk (as your 2nd half is on closer to puke point)
~thus great for newbies with small accounts!
... @rocksolid68 mentions this in earlier post where he will average down very close to his 'puke point'.
Caveat: if new traders cannot half their original position cos already trading minimum size, due to small account, then they should be building their account with a one lot (yes its v hard). Dont worry about averaging down til you have done that! Some would argue they shouldnt even be trading that specific instrument. There are plenty of brokers who provide micro lot markets.
