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Strategies & Market Trends : DAYTRADING Fundamentals
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To: Cormac who wrote (5193)11/5/1999 6:35:00 PM
From: dpl  Read Replies (1) of 18137
 
>My risk is the amount of money I allow myself to lose, not the amount of money I am using ...the amount of
money is just a tool to trade with.<

I agree with you on this.I like to take it another step.
The amount of money put into a trade should be proportional to how good the trade is.How high the probability that the trade will work. In this way the trades that tend to go against you over time will be smaller than those that go in your favor. You are losing less money when you are wrong even with the same amount of points.

"If you average down I am to assume that you have made a conscious decision (thru your respective analysis) that the stock will again climb
and test level of resistance...you add to an already existing position - increasing your share size with an expectation of reversal...you believe
as Dan Duchardt so aptly stated you can make a case for increased probability of a reversal, and a more dramatic reversal, the farther a
stock moves away from what might be called, for want of a better term a "natural level". "

Some think that averaging down/up is bad trading. Others think the opposite.To me it depends on WHY you are doing it and the term. The shorter term it is the safer it is. In some of my trades I do average down/up but only as part of a strategy.

>If this was your true commitment would not a better strategy be to close your initial position of 500 shares at a small stop/loss, buy 1000
shares at your next level, if no reversal exit with a small stop/loss, buy 1500 shares at your next level, and so on. This would minimize your
losses if no reversal occurs, and maximize your profit if a reversal does occur. Am I just being terribly naive or am I showing my
ignorance? Or is there a contingent of traders that average down because they fail to be able to accept their initial loss?<

My problem with this is that stocks don't act perfectly in the real world.
For instance...a stock goes to 40 and you buy it. The next buy point is 37. If it goes lower after you buy it were do you sell?There is nothing that says if the stock breaks 40 it HAS to go to 37. It might go to 39 and then rocket to the moon.To me a trader can use stops or something else like averaging down. The two don't mix.

David
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