Averaging down strategy forex

Should you average down in a trade or investment? A big question that many people have. They play place a trade, then it starts moving against them. They then start thinking whether they should average down for long trades, or averaging up for short trades.

After all, if you average down, your average price for the shares lets say goes down. If the average price goes down, then all you need is a smaller bounce back up and you can get to break even or to profit.

Only problem is the more you average down, the more of your portfolio and equity in your account is at risk. Any further market moves against you have a much bigger impact because you have increased your position size. Also if the market has moved against your initial position, what makes you so sure that now after you have loaded up on a bigger position that the market will move in your favor.

You need to ask the right trading questions.

If you do plan to average down and put on a bigger size than what your risk parameters state, then you should at least have the order flow and liquidity on your side. And for most people this is sound advice as they do not want to blow up their accounts. Click Here To Get The Free Report. If you have a trading strategy where you clearly define that you will use a scaling in type entry strategy, then averaging down or up is perfectly normal.

This is assuming you have clearly positioned size to reflect this trading strategy. If you have clearly defined what your position size will be at the various entry points, and what your total position size can be for the trade, then you can take no more risk than the other traders who are getting all in at once with one trade. Let us say that you determined on April 26, that the Euro may experience a drop. Thus you do not want to get your full position size in all at one price.

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You start building up a short position at 1. You get in one-third of your position at 1. Lets say you have a stop loss for all the positions at 1. So you sell 1 standard contract at 1. You have achieved your full position size of three standard contract, but you have scaled into the short position.

Average Down

In other words you have averaged up. Total risk for the trade if all three standard lots got stopped out at 1. Now contrast this with the other type of trader who just likes to get in the full position all at once. Lets say the same trader made the decision on April 25 that the Euro should go down. They choose not to use a scale in strategy. They should to just short 3 standard lots all at the 1.

In this particular market scenario the stop loss almost got hit. Now in the end both types of traders still made money, but the scale in trader made more money because they got in some of their short positions at higher prices, while the all at once trader shorted the full position size at the 1.

Both of those entry techniques can benefit from having better market timing. It can be completely viable if you have positioned size for the scaling in of the positions and still control your risk. The people telling you that you should not practice averaging down probably have very little knowledge about scaling in and position sizing. Transform your trading with Order Flow Mastery.

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Your email address will not be published. Notify me of followup comments via e-mail. So you want bigger trading profits eh?

The question is are you ready to do what is Click Here To Get The Free Report There are however a few, or many exceptions to the never average down rule. In the above chart, I have shown the potential scale in strategy you could of used in the Euro.

Shorted 1 standard contract at 1. Stop loss at 1. Related Posts Handling Losing Trading Periods November 17, Win Rate and Risk Reward Ratio November 6, Money Management and Risk Control Are Important September 16, Popular Posts I Have Not Forgotten February 6, Greg Riba Trader Story July 21, Trading To Pay For A Sudden Need? Leave a Reply Cancel reply Your email address will not be published.

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