Averaging Down – The Quickest Way to Zero

Averaging down, is basically throwing good money after bad. Show us someone that likes to be wrong and we will show you someone that is creating a false sense of reality. The fact of the matter is, being wrong sucks; but admitting that you are wrong is how we eventually grow in life.

As it pertains to trading, when we put on a position and price goes against us (we are wrong/early), we can do one of two things:

1. Cut our losses at our pre-determined stop loss (which should be set before each position is executed, without question)

2. Add more capital to our position, in turn reducing your entry price and hope it turns around. This is called averaging down.

Now choosing option 1. will take you admitting that you were wrong or early in the trade. That may be difficult for some of you, but it is unbelievably necessary to remain in this business.

Being wrong in a trade happens all the time, it is just a part of being a trader. Either get use to this reality or find another career path; it is truly that cut and dry.

By choosing option 1., you will have given yourself the security of mitigating your losses. Mitigating losses is a critical part of the process of every successful trader.

It keeps you seated at the Streets table.

By choosing option 2., you will have opened yourself up to the possibility of digging yourself a deeper hole. Yes, we know, price can turn around and you will then be in the green ‘sooner’, but at what cost? It can also free-fall into the abyss…and then what are you going to do?

Thing is, no one alive can predict where price will be in the future with 100% certainty. So, if you know this reality, then why risk an endless amount of uncertainty?

By putting on positions, we are in turn opening ourselves up to risk. That said, there is a right way and a wrong way to put on risk. There is calculated risk and uncalculated risk. By choosing option 1. and cutting losses at a pre-determined level, you have then executed calculated risk. You have drawn a firm ‘line in the sand,’ so to speak. But if you choose option 2., then risk cannot be calculated, since there is not a hard level to calculate from. See the difference?

Trading is about odds. The only way to calculate long-term odds, is by remaining consistent with allotted risk per trade; otherwise, you are just trading ‘in hope’. Hope is not a sustainable trading strategy and will ultimately become a recipe for disaster.

As mentioned, we can't control the markets behavior, whether price moves up/down/sideways, but what we can control is how we react to what the market shows us.

It's not just about learning fundamental and technical analysis; market psychology plays a significant role in whether a trader succeeds or fails in this business.

Take the time to learn about the business and more so about yourself. Understanding the psychology of other market participants is vital, but knowing about your own is far more paramount.

About The Street Trading

Consistently Profitable.

That's The Goal.

Start with a crystal-clear vision of where you’re headed, then effectively lay the foundation to reach that goal through a systematic process. Key is to focus on what you can control.

That's The Street Trading.

We provide a straight-forward, no-nonsense results-driven trading education, that cuts through the noise to teach new and existing traders on how the stock market truly operates.

Our attention is focused on building actionable knowledge about the markets from the ground up. We construct a foundation of the fundamentals behind consistently profitable trading that you can build a career on. Take the guess work out of trading and ultimately understand what moves the market to finally flow with the Street and Trade with Clarity.

Day Trading | Swing Trading | Position Trading - It all comes down to managing risk and market psychology.

If you’re interested in learning more about what we have to offer you as a trader, come check us out at www.thestreettrading.com

We look forward to joining you on your trading journey!