Mistake? No, it's a strategy!
Imagine: you decided to open a modest futures trade, but due to a ridiculous accident (or shaky hands after the third cup of coffee), you enter a position with a volume that could support a small hedge fund. Panic? Liquidation? No, friends, this is not the end of the world — it's the beginning of your journey to hedging with averaging down!
Step 1: Realize that you are already in the game!
You wanted to buy for $20, but ended up buying for $200? Congratulations, now you have two options:
1. Cry in the corner, hugging your knees.
2. Pretend it was all part of the plan and open a counter position.
We choose the second option because the first doesn't bring profit (unless it's moral satisfaction).
Step 2: Let's hedge like true professionals!
You opened a long position at 2546.93, but the market went the wrong way? No worries! Open a short at 2609.07 (preferably remembering to switch the side of the trade, or it will be quite amusing). Now you have two positions that are battling each other like two hamsters in a wheel.
Important: don't look at each trade individually — one will be in the red, another in the green. The main thing is their total result.
Step 3: Let's average down like Jackie Chan in math!
Price went down? Buy long cheaper. Went up? Add short. Ideally, we balance the position so that at any moment we can break even or even make a small profit (There are nuances here; we don't average down just anywhere, but at a pre-planned spot).
In my case:
- Long: -6.00
- Short: +9.73
- Result: +3.73 (or +1.5% to the deposit, which for $20 is almost like finding a coin in old jeans).
Another bonus when working in short: after a drop, the price becomes cheaper and we can buy more coins, thus making the average price of the long order 1.5-2 times cheaper! (Give me some pills for greed, and more of them!)
Step 4: Take profits and don't be greedy!
Here comes the main enemy of the trader — the greedy hamster. It whispers: 'Hold until the moon!' But the moon is far away, and liquidation is close. So as soon as the hedge position goes to break-even (or even a small profit), we take it and rejoice that we avoided liquidation.
Conclusion:
Hedging with averaging down is like juggling balls: if one drops, the other can compensate. The key is not to try to catch all the balls at once, or you'll get hit in the face.
And seriously: trade consciously, control risks, and don't forget to set stop-losses (so you don't have to resort to hedges). But if you find yourself in such a situation — now you know how to turn a mistake into a 'genius strategy'.
Wishing everyone profit!