Okay so imagine you enter a short EURUSD trade at 1.0600. Price moves up to 1.0650. I’m at -50 pips.
What happens if I add to my position right now at 1.0650, still short, because I still think price will move lower below 1.0600?
Is my initial trade closed, I lose the 50 pips and a new trade is made?
If not, and if price moves down to say 1.0625, do I make any gains on the move lower from what I added to the trade?
This is called “averaging up”. The opposite is done when investing in ETF’s like the SPX 500, because the average annual return generated is roughly 7% over many years on long positions.
This strategy (dollar cost averaging) can be dangerous though in the Forex market and is usually warned against because there’s no guarantee price will fall back down in your favor. If you do this be sure to use safe money management to control your losses if price keeps going up.
I think it’s a good idea if your strategy allows it. However, I encourage safe risk management. If you only risk 1% per trade, then your first position must be 0.5% and the second position also must be 0.5%.
That’s just my suggestion.
Other people can discourage it if they want, but if your strategy allows it, then do it and see how it works out.
what happens is that you now have two positions open, one short at 1.0600 and another short at 1.0650,
and at the moment one of those positions is at -50 pips and the other is at breakeven
some platforms and brokers will display this as two separate entries, others will - for display purposes - merge the two and show your entry on your chart as a double-sized one with an entry “averages out” at 1.0625, but even the ones who do that will still display (and operate) your two stop-losses for the two entries distinctly - those are never “merged”
i’m assuming, there, that your second entry was with the same position-size as your first?
no - it remains open (whether its original entry-level is displayed or not)
no, you don’t lose the 50 pips, that remains open and a new trade is made
yes, you gain 25 pips on the move lower from what you added, and the -50 pips on the scoreboard from the first trade at the moment you opened the second position is now -25 pips, so overall you’re at breakeven (apart from 2 commissions and/or spreads)
some platforms/brokers display this as 2 separate amounts of money for “running score” puposes; others don’t; some give the customer the choice as to how they want it to be displayed on their screen (mine does this)
again, i’m assuming in this answer to your questions that the two position-sizes were the same
A losing trade is a losing trade. Never, ever coddle it, even if it causes you pain. I hate losing trades, but I hate losing bigger, more so. Get rid of it, never ever try averaging up, and focus on your winning trades instead.
You will thank me for this advice. BTW, averaging up is sometimes carried out by pro hedge fund traders with decades of trading major pairs who know what they’re are doing. You and I don’t have that experience.
Oh and one other thing. You’ll have to close both positions at the same time, or close the 1.0650 position first.
Have you experimented with this already? How did it go?
not necessarily so - it depends on your platform and broker and on whether they or you have chosen for the two positions to be amalgamated
(for example, this is one of the many significant differences between MT4 and MT5)
I trade with OANDA, through TradingView ( can also use MT4), but I can open, close and view them as separate trades or combined.
exactly the same here
(and i really like tradingview and would recommend it to anyone in preference to MT4)
Love TradingView over MT4
Wow! That’s interesting. My broker, IG, has a ¨first in, last out policy¨.
My broker does allow this, although it can multiply your gains, when the price moves in your direction, it also multiplies losses if it goes against you.
So both positions will run independently, the position opened at the lower price will have higher losses and the position opened at a higher price, lower losses, but both losses will be combined until the price moves in your favour. When the price moves as you expect it to, this case short, the position opened higher will have greater gains on the way down. You can set your take profit price targets for both trades independently, again I guess depending on your broker, but this would be advisable.
Yup could completely see this blowing up in my face. ha!
This is the answer I was looking for! You’re so awesome for breaking it all down like that. I didn’t actually test this on my trading.com account, but I’ll try on a small position just to see how they show all the details or if they just lump it all into one. Thanks again!
man! Sometimes it’s just so hard to do. Emotions right? That’s the emotions talking.
You’re damn right.
So with my broker, opening a 2nd trade using the same pair going in the opposite direction of the 1st trade will close the first trade completely.
I get a message saying
So time to get a broker with better trade features, don’t you think?
Hedging is not allowed in some countries, like USA. Where are you located?
You got me there.
No, I’m in Canada.
