Don't pay dollar to keep 2 cents when wrong. Cut your losses quickly. Trade what you see, not what you think.
Joined Oct 26, 2011
719 Blog Posts

How I save my ass by not…

averaging down on SZYM.

SZYM is in my vision portfolio and, unfortunately, it was going thru a rough patch the last 2 weeks right after the big jump on the joint venture with Bunge news.  In fact, I reduced my position as the price continued to decline to the downside.

The good news is that because I did not average down, even though I still believe in its future potential, I am not being distracted by the downward move.  The impact of the SZYM negative move is inconsequential to my portfolio.

IMAGINE IF I had averaged down, I would be in a world of hurt and emotional turmoil.  It would tie up my cash and probably even distracted me to focus on DDD and SSYS.

This is the classic example of why I don’t do averaging down..  It just doesn’t pay.

Remember, when you average down (or up), you are adding size.  Don’t you want the market to be in a more favorable term when you are adding size?  Like the trend going in the same direction of your trade you are adding size on?

And look what happened to DDD and SSYS, I kept averaging up when the trend is going up.

Statistically speaking, an upward momentum (or downward momentum) tends to continue the same direction until an opposite force come in to stop the momentum.  This is actually the definition of Newton’s First Law of Motion:

“Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.”

There you have it, these three trades (SZYM, DDD, and SSYS) in my vision portfolio are further proof that averaging down (against trend) doesn’t pay and averaging up (with the trend) gives you a better edge.

Good Hunting!

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