Thursday, April 23, 2015

Don’t Average Down

Suppose you have put on a trade and the market has taken it against you. It moves about half way to your equity management stop level and you say to yourself; “I’m sure the market is going to move in my desired direction, so if I place another trade the same size as the original order, then it only has to move half way back to my original entry to be even, then I can get out without a loss.” Let me ask you some questions:
• Does the addition of the new position remain within your equity management?
• Are you facing the evidence that the original position may be moving against you?
• Has probability shifted favorably or unfavorably since original entry?
• Have you evaluated the current market condition with a fresh view and is the decision to place another trade rational, and potentially profitable in its own right?

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