What is averaging in Forex. Averaging in trading. Constancy of contributions when investing

Averaging is an attempt by traders to avoid losses by opening new trades against the existing trend in anticipation of a correction. Averaging in Forex is called by some as a way to limit losses, although in reality it is not. With a competent way out of the situation, the trader will, of course, minimize losses, or even break even. If a negative scenario develops, the losses could be very significant. Is it worth putting it into practice? averaging method and how to do it correctly?

What is averaging (Forex)?

Let's look at averaging as a principle for opening positions in the foreign exchange market using an example. It’s worth saying right away that the method can be used as part of absolutely any trading strategy. It is more of an alternative to stop loss and is very similar to the Martingale principle, with the only difference being that when averaging in Forex, the lot is not doubled when opening each subsequent transaction.

The essence of the tactic is as follows. The trader initially opens a deal using his trading system. When the price moves in the desired direction, take profit is triggered. The operation is closed with a profit, and the trader waits for the next signal to enter the market. This continues until the quotes begin to move in the direction opposite to the open order. Stop loss is not used.

The Expert Advisor is not a stand-alone automated trading system. It performs only auxiliary functions. According to the settings, it sets pending orders at a given distance from each other, closes transactions when the required level is reached, that is, it completely follows and leads the grid of orders to the end. It greatly simplifies the trader’s work, but do not forget that it is not recommended to leave any advisor unattended. What could this mean for you in this case?

Let's assume that the market has established a long trend without corrections. The advisor continues to open more and more orders, while the funds on the deposit are rapidly melting away. Uncontrolled use of the assistant in this case can lead to loss of the deposit or significant losses. It should and can only be used as a technical tool that makes the trader’s work easier, but does not make it completely automatic.

The ArgoAverager advisor was tested on the broker's trading platform Alpari.

Despite all of the above, the principle of averaging positions on the currency exchange has a right to exist. For beginners just starting their trading career, it is better not to resort to it. Professional traders are advised to follow the rules of money management and not exceed risks when trading according to the method.

We remember that the profitability of trading very much depends on

Every trader who trades on the Forex market knows that in order to save a deposit and nerves, it is imperative to limit losses using a Stop Loss order. This must be done, since the market is not always predictable and at such moments the price often goes against the trader.

Figure 9. Fibo levels helped determine the position of 2 averaging orders.

Professional traders in this market advise not to place average orders too often, no more than 20 points later. The main thing is that the stop loss value is less than the take profit. At least this is what the Forex averaging strategy says and this should be taken into account.

Although the averaging strategy does not regulate any prohibitions in opening such positions in the Forex market, nevertheless, there are certain recommendations:

1. Less than 20 points There should not be an averaging order.
2. It is not worth increasing the lot of the average order, otherwise it will no longer be averaging on Forex, but a classic Martingale. We know the consequences of increasing lot sizes.
3. It will be more reliable to use dynamic averaging than fixed. Because the market is not without price spikes.
4. For competent traders, averaging in Forex will be a useful tool to reduce losses. But it will still be better if trade without averaging orders, according to the rules of proven trading tactics.

Remember that the Forex averaging strategy will help save losing orders. However, this technique should not be considered the Grail.

If the trading strategy fails and the price turns against the trader, Forex averaging can be tried several times. The main thing is that the risk is justified. Reducing losses is equivalent to making money. It is not for nothing that it is said: “money saved is money earned”.

It is important to emphasize the fact: when a trader experiences frequent averaging of orders, it means that his trading system has failed and need to look for weak points or choose a more profitable strategy. All experienced Forex traders know how to use averaging of losing orders. So, you learn to minimize your losses in order to reduce the load on your trading deposit.

Averaging (increasing a position to form a safe weighted average price) is the most important element of position sizing control and is a huge benefit.

It is categorically not justified to enter a trading position for the entire desired volume at one point, at once. Moreover, the simultaneous closure of the opposite position (the so-called coup) is not justified. Some gurus like to talk about how they immediately take a short position at the stop loss point on a long position, and as a result quickly make up the recorded loss with profit from the new position. As a rule, this is a completely unprofitable tactic.

There is a zone for closing a long on growth. And there is an overlying zone - for opening a short (or the previous zone, but already at the return of the price after some time). To assume that you are so infallible that you can sell longs and go short at the absolute top of a movement is presumptuous. Expecting that you are so wrong with your stop loss that the price will drop significantly after it, and therefore you can immediately make money on the short, is reckless. Of course, in the charts in hindsight you can find confirmation of the profitability of any, even the most crazy, actions. But most likely you will do this with profit one time out of ten.

I think it would be wrong to immediately enter the entire possible volume and place a stop loss next to it, which will almost certainly work. It is much safer to work out the price range by carefully selecting the volume of subsequent transactions in such a way as to ultimately form a repeating average price for the entire trading position. At the same time, you don’t have to add purchases if the market preconditions for a bullish game have changed dramatically - then you will not increase the size of your existing longs. This means that this will limit future risks of losses.

Averaging is a great benefit, if by this we mean a series of entries to form a good weighted average price located below a zone of strong support (for a long) or above a zone of strong resistance (for a short). Moreover, this is the most adequate and calm way to make money in the market than, for example, rushing after the outgoing price (buying as it grows, that is, building a “pyramid”), or rushing after the breakout of an important resistance, not knowing whether it is false breakout or not (there are such strategies).

Market preachers are often disingenuous when they categorically oppose averaging. If you took a long position expecting the market to rise, and the price went against you, then any new purchase, even in a different instrument with the same aim, will actually be an averaging. And pyramiding, that is, gaining a position as the price moves in your direction, is also averaging. It turns out that other than logging in to everything at once, there are no options offered. And this is of course not true.

By the way, pyramiding is used by large speculators, as a rule, for manipulation in the market, and brings disappointment to the ordinary trader, and no wonder: you constantly worsen your weighted average price (since you buy more expensive all the time), and as a result, significantly increase the risks of loss of profitability and profit.

There is one more point. It is very convenient for public analysts to make trading recommendations by adding the magic phrase “pull stops closer” or “place a short stop.” It seems like if everything suddenly collapsed, it means that the loss under the stop loss was not at all large, just think. However, again, trading with stops is extremely costly, as brokerage fees are high and can take up to half of your annual profits when actively trading. Therefore, you should be much more careful about your inputs and outputs.

Thus, averaging for a private trader is a necessary thing; with its help, you increase the position to the desired size, bringing the weighted average price to a level that is repeatable and justified by the market.

Averaging is one of the most effective techniques for limiting risks, along with diversification, counter trading, shifting, and cash management. But more about this, perhaps, later.

The Forex averaging strategy is very popular among both beginners and professional traders. Its use allows you to compensate or minimize losses in situations when the price level begins to move in the opposite direction to previously opened orders.

The averaging strategy on Forex is perceived by most traders not as a method of making a profit, but as a fairly effective way to reduce losses when trading.

Forex averaging strategy. The essence of the technique

The basic principles of the averaging strategy can be understood in more detail using a specific example.

In the picture above, you see that in the hope of a quick reversal in the price level, an order was opened to sell the currency. At a certain point the price dropped slightly, but after that it began to rise again. At the moment when the price level reached level 2, it became clear that the order was opened by mistake and you should try to close the deal without losses.

In order to compensate for losses from the first transaction at level two, a second sell order is opened with a similar lot. In order to compensate for losses from the first order, the second transaction must close at level 3. As you can see, in the picture above, level three is located in the middle of the opening points of both orders. Thus, when both orders are closed at level three, the loss from the first transaction will be equal to the profit from the second, which will keep the deposit safe and sound.

In the situation discussed above, not two orders can be involved, but any number of them. The Forex averaging method assumes that the income from transactions closed with a profit compensates for the losses of unsuccessful orders.

Even though in the example above the trading income was zero, successful Forex traders prefer to use an averaging strategy to make a profit. This situation can be examined in more detail using the following example.

Averaging positions and the Martingale method

Along with averaging positions, traders often resort to. It is worth recalling that this trading strategy was developed for playing roulette, but traders managed to adapt it for trading on the Forex currency market. In short, this strategy is based on the fact that if a losing trade appears, the next one is opened at double the size.

In roulette, this strategy works as follows: the player bets chips, for example, on black, if he does not win, then he also bets on black, but twice as many chips as in the previous case. This continues until black comes up. As soon as this happens, the player will win back all previously losing bets and slightly increase his capital.

As for the Forex market, trading here follows the same principle. Each subsequent transaction is opened in double size, if there were previous unsuccessful attempts. By increasing the lot, it is possible to bring the third level closer to the market value. In the example above, we saw that the break-even level of 2 orders was between levels 1 and 2.

If the second order were opened at double the size, then to close both transactions without loss to the trader’s account, it would be enough for the price to reach the fifth level. In this case, we would have received a loss from the first transaction, but due to the fact that the second was opened at double the size, the price only needed to rise to the fifth level.

How to choose an averaging step

A very important point that needs to be paid attention to is the number of points in a step for averaging. In order to find the optimal distance, it is necessary to conduct monitoring and make calculations. To begin with, it is recommended to identify the volatility of the currency pair you are using using a volatility calculator.

For example, the daily volatility of the euro/dollar currency pair is 90 points. If you analyze the chart, it is not difficult to notice that every day it rolls back by about 30-40 points; it is this value that is recommended to be used as a step for averaging an unsuccessfully opened transaction.

Features of using the Forex averaging strategy

Despite its relative simplicity and high efficiency, the Forex averaging strategy has both supporters and opponents. Proponents of this method claim that it allows you to effectively avoid losses when trading on. Opponents of this method consider it very dangerous, since in some cases it can lead to the zeroing of the deposit. This can happen in situations where the market is dominated by a non-recoil trend, which can ultimately reset your deposit.

Successful Forex traders believe that this method of averaging positions is optimal for those who are not psychologically prepared for losses and, under unfavorable circumstances, may simply become disillusioned with trading on the foreign exchange market.

In order to eliminate the possibility of the trading deposit being reset, it is recommended to create two or three averaging transactions and if the price level continues to move against the direction of the orders, they should be closed and losses recorded.

In essence, the Forex averaging strategy is an attempt to win back, which is used by traders who do not want to put up with a decrease in the size of their own deposit. Before using the Forex averaging strategy to trade with real money, it is best to try it out on.

Many traders use the averaging strategy as a way to compensate for losses. Other traders use the averaging strategy as a way to enter a position. Let's understand this issue and study different averaging strategies.

Let's sort it out piece by piece.

• Averaging method
• Position averaging
• Averaging methods
• Averaging Strategies

Martingale.

Many people confuse averaging and Martingale. Martingale is a trading strategy that involves increasing your position when there is an unexpected movement. This happens very often in binary options. Using the Martingale system, people have been making money for some time. 99% of their transactions are positive, and the last 1% is a big minus, they lose money. If you have a deposit of 3 million, then please trade binary options for 30 rubles using Martingale, I think you will live well.

What's the trick here? The trick is that Martingale is an increase in its volume. We went to buy with 1 contract - we didn’t guess, then we go with 2 contracts

increase again, etc. You can calculate the coefficient, you can go without multiplying by 2, but multiplying by 1.8, 1.5, 1.3. It also happens that people multiply by 20, but you need to talk with psychoanalysts or even psychiatrists and ask what is wrong with a person if he multiplies his position by 20 in case it turned out to be “burnt out”, ask what is it for illness.

Can I use Martingale? The fact is that Martingale was originally invented as a means to beat the casino. But casinos, as you see, are alive, well and developing, in the USA, for example, they even build housing complexes, if you come to a casino, for example, then you can stay with them for free, with free food, etc. Those. they have money. Accordingly, if everyone knows about the Martingale strategy, then why does the casino still exist? Because the strategy is crap!

Martingale pitfalls.

If we consider roulette, then we always have the probability of hitting a zero. That is, we do not have 50/50, as many say, we have much less. I don't know how much to count. Let's take 33/33/33. That is, it would be more correct. And accordingly, if you constantly bet red/black/red/black, increase your position in case of loss, then you always have a zero option, which will definitely come to you statistically someday. It’s about the same in the market, but here it’s a little different. Here the market itself acts as a zero. That is, we are not Vanga women, we do not know how long the market will decline. There are assets. which have been falling for several years in a row. In my opinion, the yen has fallen for 40 years in a row. Imagine that at the top point you start shorting or longing and the market starts to fall, it falls and falls, with pullbacks. But nevertheless, given that every time you enter, the market goes down again, etc. Here there is a struggle between the market and your deposit. As a matter of fact, I already know who will win, I think you can guess it too. Therefore, you cannot use this, naturally, if you do not have a rubber deposit.

Averaging.

If we are talking about averaging, then the picture is a little different. What's happened averaging? Averaging There are several types: There is averaging in order to minimize losses, there is averaging in order to enter the market at the best prices.

Averaging entry position.

The fact is that most of you are trading 1 or 2 contracts. This is not entirely correct. When you have a position of 20 contracts or 10, you will already try to enter the market in such a way as to enter at minimum prices. The fact is that it is not always possible to enter such a position when the market bam - and flew away from our position. No, what usually happens is a flat. Do you think it makes sense to enter with small contracts, and then, when the price goes down, add more?

In this case, your average price will no longer be at point 1, but your price will be approximately at point 2. That is, you are essentially already at the entrance earned. You already planned to enter with 20 contracts, but you would have entered at point 1 and would have lost a certain number of points, depending on the asset and your trading strategy. You have contributed and in general you are living well. But you have a stop for this average position. The reinforced concrete stop that you will receive, but you will receive it with a naturally increased volume.

There are also small risks. If the market is in a strong trend, if the market shoots up, then naturally you will enter with minimum contracts, but during a strong movement, entering with a minimum volume is not very good and it will be a shame that you could have entered with 20 contracts, but entered with 5 contracts. Lost profit. We could have bought 3 Lamborghinis, but we bought one. Can you imagine what a shame? The mistress will be shocked, etc. There is also another point.

Averaging to minimize losses.

The one who does this, of course, it is advisable to break this person’s fingers, but nevertheless, I am against cruelty. I think anyone who does this will quickly leave the market. What happens is very simple: a person enters some position. Here it’s about the same as in Martingale, but the position and the number of contracts do not increase. A person enters the market and averages, as shown in the screenshot

If you decide to engage in averaging, then set yourself a level where you will exit the market. The level where you understand that the entry logic has changed and, accordingly, you need to get out of the market as soon as possible, otherwise I will suffer losses. If you don't do this, then you will average until a stopout occurs. This is how our brain works. Unfortunately, this is psychology guys. You will average and top up until there are no cat tears left from your deposit.

conclusions

In literate averaging there is nothing wrong if it is averaging in order to enter a position. You can average to the point of madness, but you always have a certain level where you will leave the market, realizing that the market will not turn further into the area you need. Here we unfortunately turn to psychology.