Why Double Down

Doubling Down or averaging a losing position is strongly criticised by many people. I'm not one of them.

I'm not advocating to average every loser, but doubling down is a valid strategy to have in your arsenal of tools to use as a discretionary and as an algo trader.

A good example is from yesterday's ES chart.

The ES opened in RTH and I switched to the Dow Euro after I had a couple of nice longs in the ES. The ESTX50 trades a little differently from the ES as it's a European stock index.

I sold the Fib, as you can see on the chart, looking to buy back as it came back into the Keltner Channel towards the 33 EMA. It didn't happen as expected and I sold twice more as it powered through the Fib area and went overbought. By that time it was way too far from the 33EMA and I was confident of a pullback as eventually it always comes back to the 33EMA. I did have a drop dead stop.

I ended up with a 2020 average sale price and took 5 points out of the trade on the first push down. I covered half there as the price had broken through the Fib area and was looking for the price to then bounce and either take off or fail. We were far enough from the 33EMA for me to believe I could take a profit on the second half of the piece. In fact I was able to re-short the half that I had covered as the breakout failed, covering nearer to the 33EMA.