Average Position will kill you

[guillermoforex]

Imagine:

You bought 1 lot of EUR/USD at 1.3000.

Shortly, the price dropped 50 pips and you’re down $500.

Now you’re thinking to yourself…

“I knew it, the market is out to get me again.”

“But wait… if I buy another 1 lot of EUR/USD, then I can quickly get out at breakeven if the price moves up 25 pips.”

“I’m a genius!”

So…

You buy another lot of EUR/USD at 1.2950.

Next thing you know, EUR/USD tanked 100 pips—which puts you at a loss of $3,500.

In other words…

If you had cut your loss from the start, it would have only been a loss of $500.

But because you gave in to your emotions and averaged into your losses, it grew into a $3,500 loss.

So the lesson is this:

If the market proves you wrong, get out of the trade.

Don’t average into your losers because it could snowball into something near impossible to recover from.

 

[O_O]

I would like to argue on this topic. Although I certainly agree - averaging is a dangerous strategy if it is used against the price movement. But if it is applied according to the trend, then it can be applied, of course, in compliance with risk management, breaking the permissible position into several parts

 

[guillermoforex]

I would like to argue on this topic. Although I certainly agree - averaging is a dangerous strategy if it is used against the price movement. But if it is applied according to the trend, then it can be applied, of course, in compliance with risk management, breaking the permissible position into several parts

Breaking the permissible position into several parts is good as long as you don't risk more your % threshold on one trade. Let's you risk per position is 1% you can average 0.25% four times.

 

[Fin_Trader]

I also do not support the averaging method. After all, when you trade without stop losses, you constantly only increase the loss if the price does not go in the right direction. At the same time, risk management rules are completely ignored here, which ultimately contributes to the loss of the entire deposit.

 

[pippin]

If your play is based on long-term outlook, averaging may be a perfect way to make your position more resistant to downside while retaining opportunities to squeeze max from long-term trade. I really like to enter position partially when trading on Gold, for this I use special averaging bot with HFM which does everything for me, I need to just to set the step in pips.

 

[Fxzombie]

When compared to martingale, averaging is lower risk, it only uses the same position size as before, and traders are consistent, for example with 0.1 lot at each averaging step.
In contrast to martingale, this is riskier because the trader increases the position size at each martingale step, for example, the size of the first position is 0.1 lots, the second is 0.2 lots, and so on.

 

[Fin_Trader]

When compared to martingale, averaging is lower risk, it only uses the same position size as before, and traders are consistent, for example with 0.1 lot at each averaging step.
In contrast to martingale, this is riskier because the trader increases the position size at each martingale step, for example, the size of the first position is 0.1 lots, the second is 0.2 lots, and so on.

I think it is risky to trade both of these methods. It is important to stop in time and close the loss if you see that the price continues to move against the grid of your orders, especially if there is a stable trend. Yes, unlike martingale, you will not lose your deposit so quickly, but if you trade pairs with high volatility and do not close losses, you can also quickly lose your deposit.