The very successful traders I’ve known are very aggressive. When they’re right, they press their advantage. They add to good positions or keep re-entering in the direction of their idea as long as nothing is proving them wrong. “No one ever went broke taking a profit” is not how the best traders operate. What Dr. Kiev was saying was get out of losing ideas quickly, but really milk the winners. A good trade is valid until proven wrong. Just a few more big winners make a big performance difference by the end of a year. Risk management is not just cutting losers short; it’s also ensuring that the average size of your winners handily outstrips that of the losers.
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rssDo Losers Average Losers
Do losers average losers?
Averaging down is usually compounding your loss had been my experience.
Or, throwing good money after bad money.
Averaging in or out looks a lot like hedging/scalping the gamma of an options position. Counter trend if you’re short, trend following if your long.
How you amend your position with respect to some factor (be it equity, time, what-have-you) is imho the next frontier, and the most productive, to-date, endeavor in portfolio management (and little understood because people had not crafted the tools to study it).
Adding to losing positions is portfolio insurance in reverse. The points bad of portfolio insurance, are points good now in this exercise and vice versa. There is an enormous, fertile, ocean-sized domain to be explored and exploited here, and there is the opportunity to step beyond mere aphorisms in this regard.
Ralph, as I understand what he does is the worlds master of averaging positions—but not for short term trades—only trades where he knows the position will show a profit…unlike we short term traders that often buy at all time highs, etc.