Averaging Strategy – Using the method of position averagingTuesday, 27 February 2018 15:03
Averaging Strategy is used primarily to reduce losses, and not earnings in the Forex market. The most successful traders are able to twist the system in favor of making a profit.
This technique is ideal for beginners who are very stressful about losses and have not yet learned to predict the price movements qualitatively.
The example of using the strategy
To describe the essence of the method, we will give an example. When opening the order, let’s say, for a purchase, you hope for a certain price movement. However, when the curve reaches the X level, you realize that you have opened an erroneous deal and you need to close it, at least, without losses. Then, open the opposite position with the previous lot.
To go to zero, both transactions must be closed between the opening points of both orders.
Averaging Strategy involves any number of transactions, as long as the overall profit covers up losses.
Combination with the Martingale method
Initially, Averaging Strategy was created for playing roulette, but with time, traders could find use of it in Forex as well. For gambling, the Martingale method is common, many players only use it. Therefore, it is not surprising that this trend has also come to the currency market.
If you briefly formulate the essence of the method, it turns out that after a losing trade you need to open a new order in the same direction with a double lot. If you win, it will be possible to cover up the failure from the last transaction and even replenish your trading account.
Turning to the example above, we realized that in this case the break-even level was between the opening points. But, if you specify a second order with a double lot, if the price gets to the Y level, you would have already covered up the loss. That is, the first transaction would have recorded a loss, but the second compensated it.
It should be remembered that Averaging Strategy is also a kind of roulette. Test the options for increasing the lot on the demo account. Some traders multiply the previous bet by 1.5. Other Forex participants start using Martingale if necessary, that is, not from the very beginning.
It is important to develop your own trading strategy, and then you cannot only insure yourself, but also profit on, let’s say, wrong decisions.
Averaging is an excellent technique for novices, because it allows you to hone the skill to work with another strategy based on the skill to go to zero. Often, it is an addition to other Forex techniques.
Recommendations on working with Averaging Strategy
At first glance, the system may seem like an ideal find for a trader, because it leads to profit even with erroneous forecasts. However, experienced masters of Forex trading will immediately say that Averaging Strategy has its drawbacks and can easily lead to the funneling of all capital.
It is very important to understand, at what level it is worth closing the position in order to achieve the goal. For this purpose, analyze the volatility of the asset and monitor the chart visually. For example, you found information that the dynamics of the pair used is 90 points per day. Looking at the chart, we found out that the average step of a rollback is 30 points. These 30 points will be your best step for averaging a false order.
Try to open transactions at an equal distance and choose your own rate, which you will always follow. It is not recommended to increase the lot in a chaotic order.
This strategy has both supporters and opponents. Some say that with its help you can easily funnel the deposit. Others argue that this is a good insurance for wrong decisions. In any case, each participant in the Forex market decides what to do with its assets and according to which method to trade.