Trading Tip - Average Strategy For More Profits

Many traders like to scale out of their moves

, or split their contracts while exiting a trade. That move works well, and in some markets it is the way to go. I focused on splitting and taught that for years while teaching the Emini S&P.

Now that I mainly trade and teach the Mini Dow, I like to average instead of splitting or scaling out. The goal of both strategies is the same in my opinion. When you scale out of a move, you are wanting to get into a position where you have nothing to lose. You have already peeled off some of your contracts so that no matter what happens on the remaining one(s) (whatever you left running), you will at least break even. You won't lose any of your account.

The way I average with the mini dow, its goal is the same. I want to be in a position where I have nothing to lose, and a potential good gain! If you put yourself in that position enough as a trader, you will get in some runs, and your profits should improve.

The good news (and the reason I like averaging better) is that once you average you have a chance to let all of your contracts run. Sure, you could split after averaging, but why? Why not protect all of your contracts and have the potential to run with them all too?

So, if I get in a trade on the mini dow, and it moves against me let's say 10 points (which is also 10 tics on the mini dow), I then place another order equal to the first one. This moves my entry point up mathematically by 5 tics. If it moves against me another 10 points I may even average a second time. This would all depend on your averaging formula that you would have down in writing (or at least firmly in your mind) before you ever enter a trade.

Many times this all takes place within seconds. Once I have moved my stop up to protect a few tics on all my contracts, then I just wait and take what the market gives me. It my be a few tics, or it could turn into a NICE run. Either way, I have nothing to lose. Don't you want to be in that position as often as you can as a trader and / or investor?

by: Doug West

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