Strategy of Averaging
A disciplined trader always uses Stop Lossa - it helps to save not only the deposit, but also nerves in situations when the price movement does not correspond to the made forecast and the loss increases. If Stop-Loss is exposed, the trader knows for sure that the amount of loss is limited and the entire deposit will not merge.
But during price movements, in a loss-making zone, the chart rarely resembles a straight sloping line, so why not try a little bit of risk and bring losses to zero? Yes, there is a chance of getting a bigger loss, but there is also a chance not to lose anything.
Those who thought that they got a universal weapon to fight losses, at once I will be a little upset - this technique is risky, beginners should not use it exactly. The material is aimed more at those who have been trading for a long time, but would like to minimize losses with permissible risk.
With regard to applicability, averaging can be used with almost any forex trading strategy. For example, Sniper works perfectly with averaging, in principle, on it already loss-making signals are rare, and with the application of this approach losses become even more rare.
The myforex averaging strategy is implemented in a huge number of different versions - from the usual manual control of warrants to complex automated systems, which trade on several time frames of a large number of instruments at the same time. In one form or another, almost every trader applied this principle, especially popular with beginners. The main reason is lack of experience and desire to get rid of the drawdown on the account as soon as possible. When used properly, averaging can be an effective way to increase your income, but can also cause total loss of funds. Next, let 's take a look at the basic principles of working with warrant grids.
Algorithm of actions
The picture below shows a typical case where an averaging strategy is used. A USDJPY pair is purchased near the support level in the hope of withdrawal. After passing the price for some distance we open another position. Now, in order to reach zero, it is not necessary to wait for the price to return to the opening level of the first position, the break-even point is in the middle between these two orders if the same volume of transactions is used. This will make it possible to get rid of the hanging minus that exerts psychological pressure more quickly. If the situation is favourable, such a process will be limited to only two warrants, but if the movement continues, it will be necessary to make a decision - to close loss-making positions or to continue to increase the volume, opening up new ones.
Market situations where application is justified
1) Strategy of weekly trading system away from resistance/support. A common technique that can be supplemented by an element such as averaging. The basic idea is that resistance is usually not a specific price value, but rather some area from which price will fend off. Where specifically the withdrawal will occur is unknown, so you can use several delayed warrants and stretch them across the range. This will make it possible to cover the entire turning area as much as possible, and as the reverse movement develops, parts of the common position can be closed.
2) forex trading strategy on trial. Once the price breaks through and is fixed behind the level, this resistance zone turns into a support zone. That is further at approach to it it will push away in the same way the price, but already in other direction. Related to this is the phenomenon of level retest (or trend line - the principle is the same). This is a return price to the punched value with bounce and continuation of the main trend. Thus, if it is not possible to clearly determine the sample, you can wait for the retest and according to the same scheme as in the previous case, place several warrants at once. In both cases, the trader has some certainty in the form of a boundary that price is difficult to pass.
3) Turning patterns. Many patterns have a range of allowable values of ratios between constituent waves. Consider the harmonic patterns and the ZUP indicator. Depending on which model is generated, different levels of potential price reversal are possible. Also applicable here is the strategy of dividing the orders by area and averaging the common position. This method is based on a variety of patterns and involves holding open positions to the mark where the reversal will be worked out. That is, in this case, the averaging is not used to output the aggregate position to zero, but to reasonably increase the volume. This makes it possible to feel more confident, as the trader opens up positions in accordance with a well-established model in many years. The indicator graphically represents the levels where the reversal can begin (they are in the red frame), the pending orders are displayed on them.
Volume of each position
The strategy allows you to use different volume options for each input. If all warrants are of the same size, it is easy to calculate the exit point to zero of the aggregate position. The progressive increase of each subsequent position leads to a serious burden on the deposit, in which case the trader must note for himself a certain level of loss, beyond which it is impossible to go, as very often there is a pass of the price before the account is zeroing and a subsequent reversal. Such situations form the wrong approach to capital management when ways of holding a position as long as possible are sought instead of limiting losses. At the same time, with competent management and not very large volume of the first position, in the short term the increase of each next entrance will allow to get rid of the drawdown very quickly, because it will take not half the distance between them, but much less. This greatly increases the likelihood of success.
Trade in a bokovika
Best environment for averaging strategy. To define the flash, it is sufficient to have four turning points, after which you can draw the boundaries of the flash. Trade is conducted from one border to another, and they can change slightly, spread, and form local flashes within a larger one. The principle of trade is extremely simple - at a distance of about a quarter of the range from the border, a warrant for withdrawal is placed. At a distance of one eighth another, further on the border itself and another slightly further than it. Thus, the entire potential reversal range is covered, the probability of which is extremely high in the consolidation condition. Teaks in such trade are set at a distance from half to two-thirds of the width of the channel, and it is not necessary to set the same goal for all warrants, it is possible to close them sequentially through the set distance. At the opposite border we also put several deferred positions. As more such fluctuations occur, it is necessary to adjust to trade only towards the main trend on the senior time frame, as the consolidation usually breaks in the direction of the main movement (form the pattern "flag").
Turn after recoilless movement
Protracted almost recoilless movements can often be found on the market, which begin with a powerful pulse jump. Such movements provoke usually important economic news, such as a change in the vector of monetary policy of a regulator. If the trade is conducted in the short term, it is necessary to wait for all exchanges to react to it, that is, it is possible to start looking for a reversal only after 24 hours. If the news is American, the trader should wait for the next American trading session. As soon as the movement begins to slow down, and there are kickbacks comparable to the waves of the main movement - you can look for a reversal, and here the averaging strategy is applicable. It is not worth setting big goals, but due to the fact that averaging is used, it is possible to make a good profit due to the increased volume of the general position.
This is a wonderful kind of trade, which, unfortunately, is being implemented by very few. Unlike the averaging of the loss position, the profile position averaging strategy is applied here. That is, the trade is trending, after the first warrant has gone into the plus, the entry is made in the same volume in the same direction. And so until the goal is achieved or there is a rollback that triggers a general no-break. Such a strategy is also called trend nets, pyramids. The main benefit is that the goal is not to go to zero, but to make a good profit, and also to keep the plus combination of warrants much better than to be nervous and pray that the price makes a rollback to the point of no-break in the classic version of averaging.
In general, depending on how averaging is used, it is possible to get both positive results in the form of a refined entry on turns, and completely lose the deposit if it is completely unjustified to start chaotic entering the market without any justification. Hence such contradictory statements about the forex trading strategy - someone has a way to earn more, and others have a reason for losing another deposit, which, of course, is blamed on the strategy, rather than a completely ill-conceived approach to trade.