To minimize the loss when our position in opposite direction to the trend, as well as to maximize profits while our position in the direction of the trend, we could use Averaging Strategy.
Averaging based on the meaning it is averaging. In the case of open positions, averaging strategy is useful for averaging the position opening price. Which at a certain level, regardless of the condition of its market value is the position that we open is breakeven.
In trading, Averaging strategy meaning is opened again a new position in accordance with old positions although this time the price moves against, in the belief that the market will soon move in accordance with our predictions.
Judging from its objectives, the strategy of averaging is used for:
1. Enlarge profit
I predict the market will go up, so I open a buy position.
Moments later turned out to be market does go up, but I see the market will rise even higher. So I open a buy position again.
Because I still think the market is very strong to go up again, I open a buy position again.
When the market rises, now i have 3 buy positions that are profit, so if I close the third position, I profit more when compared to not perform averaging.
2. Accelerate Breakeven at a loss position.
I predict the market will go up, then I open a buy position.
Moments later turned out to be market decline, meaning that it opposite to my predictions. However, I am sure the market will soon to rise, then i open my second buy position.
Now my position open price is the average of the two prices of open positions.
Reverse direction when the market rises, and reached an average of the opening price of second position, the position I have nothing to lose anymore, but even.
If the market continues to rise then of course my position greater profit.
Tips in performing averaging:
- For a market that moves according to our predictions, use averaging strategy before the market overbought or oversold.
- For a market that moves opposite to our predictions, use averaging strategy when the market enters the overbought or oversold zone.
Averaging forex strategy is very helpful to minimize losses and maximize profits. In use we have to keep an eye on market overbought or oversold condistion.