My Steps in Learning - Averaging and Cutting Losses 1.

Averaging is a technique when you double up on a losing position. It is probably the Number 1. Sin in trading. The problem with this is that it works.

If the market went against you 10 ticks, it will have to go back 10 for you to break even. If you averaged and added another one, now your average price is better and the market has to come back only half, only 5 ticks for you to break even. Mathematically you have just greatly increased your probabilities.

Averaging does work most of the time, but when it doesn`t, it can really lose you a lot of ticks.

People do it because they are too stubborn to admit that their trade did not work out, or they call it scaling in.

I used to do it too, but this was not fun and I had to learn to stop myself from doing it.