Man, I like this very much. This is the real work, beyond books, of small cap retail trader. 50k account can't lose classical 2% per trade. It's a huge drawdown... After hit like this, at least I.. was very much stressed. I prefer the street fighting of intrady scalip 1 minute to all day. I'm 100% behind your advice. Your ideas and your eadge must based on low risk ideas. This is money management in action. This will be my #1 advice with credit to you. May I ask.. after how many years you phased this idea... To me about 4 years..
I have couple of accounts. One is 7 figures and I will risk 3%-7% on a trade idea, but this is much longer term. The other account for shorter term trades I risk around .5%-1%. EDIT: just to be clear, I don't mean 3%-7% of the total account, only for the money in a single trade. So if I buy 1000 shares of a $30 stock, my risk is 3%-7% of the $30,000.
It finally hit me after about 11 years of casual trading on the side. Another thing that made it more obvious is when I started flying ultralights. Those things can kill you like any other airplane, but the structure and controls are out in the open. You feel a psychological need to verify everything on the ground when you are safe.......
This is great stuff.. But I think it will say nothing to new comer's... You have to experience some things before able to understand the meaning.
To the OP, if I can ask... would you consider risk management being part of the entry? A clarification on the entry vs risk management discussion? Earlier you said, "...and develop your edge based on low risk ideas." What defines Low Risk? Is Low Risk a point on the chart that is just inherently less risky than others? Would the way to sum up this Low Risk point be, the place on the chart that has to move the least distance to invalidate your original trade idea?
In short averaging down is the process of adding to a position as it goes counter to your original position. I often refer to it as averaging down regardless of if it is done on a short trade or a long trade. However, technically averaging down is the correct terminology when adding more longs to a losing long position. Some even refer to this as scaling in. More palatable than averaging down ROFLMAO. Averaging up is the correct terminology when adding more shorts to a losing short position. I suppose it becomes whatever one's preference is on the terminology. I just refer to both as averaging down. The thing to remember is the heart of averaging down is simply adding more to a losing position. This brings BE, in either scenario long or short, closer to the present price and of course price needs to travel LESS distance in your favor to get you back into profit. Scaling up is adding to a position (you are increasing your position size) as it works IN your favor. Some may refer to it as "pressing a trade." This can be done on both the short and long side. This technique works better in larger moves but is extremely difficult to pull off in scalping because of "price probing." Price probing (which many will call noise LOL) will whipsaw a trade wiping out your profits on your scaled up entry as well as your original entry, therefore magnifying one's losses. But it is useful in larger swings. So, HERE in scaling up you are basically adding to your winners. Adding to a losing position in scalping works better than scaling up because of the same phenomena i.e., "price probing." Think about why! Nevertheless, in any type of adding to a losing position, short or long, a prudent trader must have their "MAE movement SL exit point" clearly defined and TAKE IT if hit, otherwise, losses grow exponentially. Scaling out is reducing your position size in steps, locking in profits. Some traders even scale out (reduce their position size) as a trade goes against. Thus locking in their losses ROFLMAO. It does decrease their exposure to mounting losses in the event the market doesn’t turn back in their favor. Averaging down not only decreases the distance one's trade has to move in their favor to become profitable, but it also increases profit potential if price goes in your direction, and it increase chances of a successful trade thus rendering a higher win rate. All four I deem as important in the scalping world.
Jim Rogers had a few great words to say about this in the original Market Wizards book. Also, any book by Van Tharp goes into the fundamentals (no pun intended) of positive expectancy, which is the ultimate measurement of a low risk entry over many trials. I think I explained it well enough in this thread, also. Just don't lose as much as you stand to win from any trade.