Stock FUTURES To Keep A Close Eye On

adityasaraf007

adityasaraf007

Well-Known Member
#2,649
#2,649
myamit said:
Hello Aditya,

I've seen your posts at Uttam's thread and liked your work. However your thoughts here for averaging really surprised me. That too for a believer of position sizing is important aspect of trading.

Let me try & illustrate. For example, You are happy & confident of a stock and bought it at 100 with an expectation to go up.
At this point you may have made your decision and atleast bought 50% of qty that you wish to buy (unless you're hoping to make more than 3 add-ins to your position). And most cases for day trader, you have gone all-out at appropriate opportunity.

For day trader, once you are already committed your position... you actually do not have more equity to add at lower levels. If you do so than you're overthrowing your own safety net of "correct position to trade".
Secondly, trying to average at lower levels... is almost a guessing game (as you have once decided a level to buy and that is breached now). Consider energy and time you spend on this. Instead this can be better utilized to look for other opportunity (and there are many in market) with much less stressful than your current loss making position.


For positional trader, you may have committed 50% of your position to trade and hence have some room to add. I agree that sormetime lower cost averaging helps you to earn few extra bucks but again think of your mental makeup. I've seen guys who are so committed to a stock (and attached rumor, news, belief etc) that they keep averaging at every lower level.
IMHO once you're in this mode, it is very difficult to overcome your trading ego that you you have proven wrong with your trade. Instead you start feeling happy that you're lowering your cost and hence some day will make more money.

I'll appreciate your comments and thoughts.

Regards,
Click to expand...
Hi Amit ji....

I am not advocating to follow the concept of Averaging for each and every trade..... And, I believe, even Sushilji is not advocating to Average each and every losing position.....

What I am saying is.... to average a position when the stock has already moved away too much too fast from your Entry Price in an opposite direction and you still believe that it should start moving in your direction sooner rather than later.... At this point, we should listen to our brains.... and if the brains say that: "This Is It.... It would start moving in my direction from here onwards...", only then one should average a position..... Otherwise, it's a Strict NO.....

Moreover, from my past experiences, what I have observed with my trading is that..... If you have averaged a position once, and the market still doesn't move in your direction..... It's time to completely get out of it.... and one might also consider taking an opposite position.... This keeps away from the Vicious Cycle of Averaging.... :)
 
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