What are your views regarding averaging in forex trading? Some people see that averaging when prices move against our analysis is a form of risk management. But I personally still don’t understand if that’s true, how far averaging can be done, and when or under what conditions should we do averaging or should we not do averaging?
I avoid averaging when a position moves against me because it doesn’t make rational sense in terms of trade tactics or risk management.
For example I open a position with my usual maximum capital risk if the stop-loss is triggered - let’s suppose it is 2%. Price moves against me after entry but the stop-loss is not triggered. My entry price and decision were correct and followed my strategy’s rules. If the stop-loss is not hit but I get another entry opportunity I should ignore this as it would double my exposure on this position to 4%. And maybe I’ll see another entry opportunity and this would take it to 6%, then 8%, then 10%.
The whole point of having a strategy is because in the long run it keeps you in the game. not following the rules means there might as well not be any and I should just toss a coin…
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Hi @tommor, thanks for sharing your thought, what do you think about hedging, can we see it as risk management or it is the same like using averaging?
I prefer to let the stop-loss limit y losses in a position. After all, when I planned the trade, that was the limit which I calculated and accepted and set: what price does after that point does not make my TA and risk management wrong, it’s just that statistically price will sometimes do the less probable thing.
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Averaging is logical only in one condition. lets say you wanna go long on eurusd, it is now on a support level, you consider 2 possibilities, the price goes up from there, or it will reach another support level slightly below the other one, or i would say relatively lower. you do not want to lose the trade or the possibility to buy lower, there you enter with 50% of the volume that you really want to enter and you leave the rest for the lower support zone. you do have a SL in this case which is below both support levels
People call it “averaging” as a euphemism, to avoid referring to it as what it actually is, which is adding to losers.
Adding to winners is a very good idea, overall.
Adding to losers is a very bad idea, overall.
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“Averaging in” or “dollar cost averaging”, as it used to be known decades ago in the days of stocks-only and long-only, is (just like Martingaling, hedging and a whole lot of other futile tricks you’ll see discussed in forums sometimes mostly by a less-than-numerate contingency) a way of trying - through position-sizing fallacies - to create artificially an “edge” for methods that don’t actually have one.
It’s sometimes superficially an attractive proposition, but almost always based on mathematical misunderstanding.
Because it can appear “clever” in the short-term, though, its (many) adherents traditionally don’t like admitting (to themselves, and therefore not to anyone else) that it’s unsound and will inevitably, eventually, come a cropper.
So it causes arguments, sometimes, in forums. Especially when outspoken people like me throw our weight into the conversation (though I don’t weigh a lot, to be honest).
That truncated guy with the little cartoon-avatar has very neatly simplified and summarised the reality, just above. Add to winners. Get out of losers quickly. In the long run, that’s wise. And only the long run matters. His post is the one you need.
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You are missing the most important thing: what is your thesis? You get stopped out when your thesis is wrong. You add to your position if your thesis is correct and it gives you a better price.
If you see a HHHL and you are going for a trend join set up, then perhaps you enter at the middle of the previous pullback candle, and then you set another order at the previous swing low (i.e. averaging down), and your thesis is such that if it BREAKS the previous swing low, you are out because your THESIS IS WRONG. Since it didn’t break, so you get in at a better price.
Why would you keep averaging down when your thesis is wrong?
I know the answer is revenge emotional trading, FOMO, don’t want to take a loss, whatever you call it. But that is your psychology aspect you have to fix. But before everything do you even have a thesis for your trades?
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It’s a very long sentence but it’s maybe the best one-sentence summary of “averaging” I’ve seen online, and definitely the best I’ve seen here. 
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I’ve never personally used averaging down since it can significantly increase risk. While it might lower the break-even point, if the market keeps moving against you, the losses can grow. I’ve always been cautious about trying it 
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adding to winners is only legible if when adding the second and the next step, you still consider that as a logical trade that does fit in your risk management and your S/L ratio. I mean you should consider each step of entry as a new trade and make it only if that is logical.
Averaging in forex is risky, unless it’s already part of your strategy. If you have already worked it into your strategy then you should not have to worry about overexposure or taking on too much risk because you’ve already calculated that prior opening the trade.
If it is not part of your strategy then it is just based on hope.
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@tommor, ah i see…
@VasilTodorov, interesting, so trader need to make some kind a zone right? but where we should put the limit, in your example, how deep we will put the trade?
@TruncatedUsernam 
okay, i agree…
@S_Jane_M, yup, hmm, maybe it work in stock trading because there is Upper Auto Rejection and Lower Auto Rejection? and those doesn’t exist in forex
@Doits ouch you make the poin, i agree, i should see from that angle…
@Profitpilot same here, thats why i open this question…
thank you, noted @MattyMoney
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Averaging down is a good way to lose all your money.
Instead, use a tight stop loss, with a 1:2 or 1:3 risk-to-reward ratio.
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I don’t see anything good in the averaging strategy. Such trading is more risky and you can quickly lose your deposit. There is no risk control here, the deposit is constantly loaded and you can get losses up to its complete loss if the trend does not reverse.
It totally depends on your risk management and then the volume and how much you can lose and what percentage of your asset is in the trade.
if you have good MM ,averaging is nothing bad.
when price chop ,its hard to keep clear mind ,if you follow your averaging rules,its good i’ll said.
just one downside ,it seems not practical on forex trading
What do you all trade with? A $1000 dollar account?
Works fine for me
Trading with averaging is primarily trading without stop losses. Accordingly, losses are not limited here; they are only accumulated by subsequent transactions against the price movement. And with each averaging order, the deposit goes into drawdown faster and faster, and soon, even with small price movements against you, there is a greater chance of losing it.
After trading for 7 years on and off without any success I stopped using stop losses and started averaging responsibly. I’ve never looked back and have been successful ever since.
On Udemy there is a course, just look for day-trading-strategy-that-can-win-even-when-youre-wrong
Not my course but it changed my outlook on averaging.
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