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.