Average Strategy for More Trading Profits

Most traders enjoy scaling out their moves or even splitting their contracts while exiting a trade. In some markets you don't have any other choice but to do this and it always works well.

Another strategy however is averaging. Many experienced traders like averaging more than splitting or scaling out. Though there are advantages to each, the goal of both strategies is exactly the same if you look at it from a different point of view. Scaling a move, means that you are trying to get to a place where you will not have anything to lose. Most of the time you have already p peeled off some of your contracts so that no matter what happens to the ones left remain you will absolutely break even no matter what. In other words you don't risk anything from your own account.

The averaging with the mini DOW is very much the same. It requires you to put yourself in a position where as you will have nothing to lose and there should be a very possibility of getting good gains! Being a trader is all about putting yourself in these positions. When you have nothing to lose you will end up having runs and your profits should skyrocket.

The reason why averaging strategy is becoming popular is because you will have a chance to let all of your contracts run. Yeah, you could split after averaging, but for what? Especially when you have the chance to run all your contracts and protect them all as well.

Let's look at an example. Lets say you get a trade on the mini DOW, and it moves all of ,lets say, ten points(ten tics on the mini dow , remember). You then place an order equivalent to the first one. This will shift your entry point up mathematically by a matter of five tics. Lets say it moves again you a second time, you can then average again. However, this is dependant on the averaging formula that you use and should have written down (or at least firmly in your head) before you go into a trade.

It's important to understand for inexperienced traders that this all will take place in a matter of seconds. Once you have shifted your stock up to protect a few tics on all your contracts you can sit back and see what the market gives you. It may be just a few tics, or it could turn into a goldmine run. The fact is that either or, you will have nothing to lose. How often do you get to be in that position as a trader?

Source:
http://www.sec.gov/answers/daytrading.htm