Why you should average up, NEVER down

Discussion in 'Risk Management' started bygarfangle,Jul 9, 2010.

A reason why traders blow up is because they average down their trades, when they should instead average up.

It is tempting to accumulate more stock when the price falls, but this strategy is wrong because human psychology cannot handle the pain of severe drawdowns.

https://www.elitetrader.com/et/threads/why-you-should-average-up-never-down.202939/

and another source...same theory>>

Short Term Trading Concepts
Discipline once trading
Average UP not DOWN
	Only add to trades WHEN the mkt suggests you are right - price is moving your way, on volume
	Averaging down becomes 'emotional' and leads to 'stubbornness'. 'Stuff it, I'm right and holding !'
9	The 'mental drain' from holding an increasingly LARGE LOSING position is destructive and prevents
	you from initiating new alternative likely winning trades - you lose on this one BUT WORSE
	you miss other trades that WOULD HAVE been profitable - except you were focussed on the 'loser'.
	Wait until a trade starts performing, THEN add to it with confidence.
	Averaging down SOMETIMES leads to profit BUT OFTEN Leads to ruin. Trade rationally, not emotionally !
	LISTEN' TO THE MARKET'. - price and volume are the ONLY things that matter in short term.