I think unless the trader is really savvy to what is going on and understand the nature of trends and margin management, adding can be very risky. There are many examples, but I'll name a few:
1. Trader enters the trade, and then it starts to get gains. It pulls back, then he decides to add a position. It continues to pullback, and both positions are stopped out. One ends in a gain, and the other in a loss, and more often than not, they balance each other out.
2. Trader loads up, and position moves in his favor. He's excited, so he loads up some more. Trades go against up him and his account margins out.
3. Trader enters a trade, and he knows he got it right, but the trade goes against him. He loads up some more after it continues to pull against him, and it continues on its contrarian path, and then gets stuck with a horrible loss.
4. Trader adds a position, market goes sideways. Equity is tied up, so he cannot enter other opportunities.
1. Trader enters the trade, and then it starts to get gains. It pulls back, then he decides to add a position. It continues to pullback, and both positions are stopped out. One ends in a gain, and the other in a loss, and more often than not, they balance each other out.
Usually I add at the pullback
100 buy price moved to 120.. pulled back to 115.. I dont add at 115 coz we dont pullback is complete or a reversal.. so again the trend is back with a shorter timeframe.. May be 118 or even crossover of 120.. Now my stops moved to 115..
Stops keep trailing n sometimes may have to close at the break-even
2. Trader loads up, and position moves in his favor. He's excited, so he loads up some more. Trades go against up him and his account margins out.
I never do that unless there is a pullback.. will wait for a pullback to add..
3. Trader enters a trade, and he knows he got it right, but the trade goes against him. He loads up some more after it continues to pull against him, and it continues on its contrarian path, and then gets stuck with a horrible loss.
I do averaging at down sometimes but not while going down.. only when moving up with a very strict SL..
4. Trader adds a position, market goes sideways. Equity is tied up, so he cannot enter other opportunities.
Added a position expecting a move.. with time, still hanging then close the trade even if it for a min loss n look for a better one..
I have been trying all these in my trade plan.. I am very novice n beginning of my trading..
Regards
Raj