Everywhere you look for advices about Forex, you will mostly read how averaging down (or up if you are short) is a dangerous strategy. The arguments is usually about how you are putting more money in a loosing trade.
But like of most mainstream advices, the few successful trades are doing the exact opposite.
Let me show you why I average all the time.
First, even for someone with great experience in forex trading and following a custom strategy, its still very difficult to pick up tops or bottoms. (Well not that kind of bottoms you pervs). So if you are waiting for a perfect entry, its all good, thats what I advocate, but at the same you have a big chance to miss that opportunity.
As you all know, I trade exclusively contrarian. And yes that pic of a girl trading upthere is a joke, girls cannot trade. Anyways if you combine the averaging mentality with contrarian trading, you get something very interesting. Let’s say I want a maximum of 10 lots in a pair. If I see an opportunity, a up spike for example, I will enter short but with a first trade of 2 or 3 lots depending on the high of the spike. If price goes down already, I will take my profit. But if price goes up, I will be looking to average another 2-3 lots. Basically if my strategy predicts the retracement of that spike at that specific time, all I am doing is spreading my risk over the chart. Instead of putting one big order, I follow the price movement.
Let me show you a real life trade example, from yesterday actually. The Yen pairs were quite green near the end of the session so all I was waiting for was a nice up spike. It was a bit slow so I decide to instead take a short early. Well price didnt go down right instead but started to breakout as I wanted previously, so I just added 2 shorts. Then when price crashed I closed all my 3 orders (you could notice the first one was breakeven).
So here you go folks, I hope I convinced you that averaging is not necessarly a bad thing. Again just to resume I think its good because of 2 main reasons:
– To pinpoint exactly the highs or lows for a perfect entry is fantasy
– Instead of one big chunk of order, you can spread your risk over the evolution of the chart
I just updated the comment section so feel free to post if you have anything on your mind. Ciao.