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Trading Strategy: When To Average Down On Your Position - YouTube
Channel: Timothy Sykes
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- So, in this video,
we're gonna talk about
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when do you actually average
down on your position?
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Very important.
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(energetic electronic music)
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What's up Tim Sykes, Millionaire
Mentor and Trader here,
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answering your questions,
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a lot of people ask me like
should I ever average down?
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Like if I'm invested in a company,
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I still believe in the company,
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but the stock is coming
down, should I average down?
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First of all, before I
answer this question,
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have you ever traded before?
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Say yes or no in the comments.
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I'm just curious not even
have you averaged down before?
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Have you ever traded before?
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I'm trying to understand
how many of my students
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are actually studying versus trading
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and again there's no criticisms,
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you can say no if you're not trading,
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you can say yes if you are trading,
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this is purely just for me so
that I can kind of understand
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who watches these videos better.
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As for averaging down, I
think that's very dangerous.
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As a newbie, as somebody
with a small account,
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you know, for me, I wanna
trade like a sniper right,
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like I take one shot,
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I'm not like averaging into
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a position and then averaging out.
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If you have like a 1,000, 2,000, $5,000,
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like your whole goal on the trade
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should be to make like 200,
300, $500 and then out.
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Averaging down sometimes can work
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but not enough of the
time to make it worth it,
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especially because it opens
up big losses, you know,
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if you keep averaging down,
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forget about if you
just average down once,
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what if you average down two times
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or three times and you
keep digging yourself in?
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You're like I'm taking a bigger position,
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I believe in this trade, I
have a very strong thesis,
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I've done a lot of research.
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Well actually, you know,
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you're just getting emotionally attached
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to that position and when
you get emotionally attached
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and you average down, yes, like I said,
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sometimes it works out but if you actually
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back test averaging down
again and again and again,
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you're not gonna do well in the long run
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and it creates many big problems.
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Like that's how big losses are created
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because you average down,
average down, average down,
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and then maybe the company
reports bad earnings
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and then it crashes even more.
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So now, you just feel
like devastated you know,
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every time you go into a trade,
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you're putting your money in there,
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you're putting your heart,
you're putting your mind,
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you're putting your time,
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you're getting you know
some emotional involvement.
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So, if you average down let's
say three or four times,
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like you are in and then
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what if the company disappoints you?
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I mean that's devastating
especially if you're a newbie.
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So, for me, I simply
follow rule number one
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'cause I trade with a small account
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and I kinda put myself
in your shoes every year,
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I start with 12,000, in three months,
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I've already grown it 18,000, not once,
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not once in this year or
I think even last year,
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maybe last year I did it once,
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I'm not you know, perfect,
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sometimes I break my own rules
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which I probably shouldn't but I'm human.
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So, if you wanna just learn,
don't average down, okay.
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If a stock is going against you,
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there's something wrong with
your thesis, cut the losses.
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Maybe even cut the game,
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maybe like you know, some
people like to average up,
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and I've heard this like add
to your winners, screw that.
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If you have a small account,
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your whole goal is to make a
little money on this trade,
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not to maximize it.
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You can start maximizing or trying
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to maximize your profits later on.
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My audience, a lot of you guys, and again,
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this is why I'm curious to
see how many of you guys
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are actually studying versus trading,
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enter your comment below, I'm curious,
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but I'm guessing, just based
on my interactions with you,
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most of you guys are just starting
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and if you're just starting
you wanna play things
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very very safely, you
wanna be overly safe.
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This is the way that I teach,
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this is the way that I trade
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because you can always get
more aggressive later on
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after you have enough money,
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after you have enough knowledge,
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after you have enough experience,
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get more aggressive later on.
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This video is specifically for you know,
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your first six months, first year,
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maybe even first two or three years
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depending on how much you study, you know,
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I have a lot of part time students.
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So, if you're only studying
my stuff like an hour a week,
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it might take you three
years to learn everything
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as opposed to if you're studying
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an hour a day, it's shorter.
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Do me a favor and just be safe,
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you can never be too safe
in your first few months,
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your first few years learning.
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If you're 10 or 20 years
in and you've already
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seen as much stuff as I
have, sometimes you know,
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you can be more aggressive
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but think a good rule in the beginning,
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is not to be aggressive on any stock,
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not to let the potential for
damage whether it's you know,
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monetary damage to your account,
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damage to your head and your confidence
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and your frustration level,
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it just opens up Pandora's box,
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and you just don't want that.
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So, for me, follow rule number one,
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cut losses quickly,
never ever average down,
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that's a good rule to live by until
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you have enough money
and experience later on
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where you can start to experiment,
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but not in the beginning.
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Don't set yourself up for failure,
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stay true, stay disciplined,
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and the game becomes easier
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and more mechanical, less emotional.
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Hey Tim Sykes, Millionaire
Mentor and Trader,
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thank you for watching my videos,
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I hope that they help you.
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I wanna share everything that
I've learned over the years,
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you can check out more
videos right over there
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and also click subscribe
so that you can watch all
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of these videos, get that knowledge,
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and become my next millionaire student.
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