There was some unintended but useful controversy generated by my recent post on trade management. The question is whether it is ever permissible and prudent to add to a trade that has moved against you since your entry.
My response to this is that I know very successful traders who add to positions at more favorable prices, and I know many successful traders who never do this.
What's clear is that adding to a trade *because* it's in the red--simply as a way of trying to bail out a loser--is a risky and ill-advised strategy. Such a trader is adding to the trade more for psychological reasons than logical ones.
There are times, however, where I will enter a trade with one unit (in my case a half-sized position) and will add a second unit if the market gives me a better price *and* if I see that the move against the first unit is losing steam. If the whole trade gets stopped out, I can easily live with the results, because two units is not a high level of market exposure for me.
What's key is that, in such a scenario (and they are not common in my own trading), I'm adding because I see opportunity and a shift in market strength/weakness that can benefit me. I'm not adding to the position in order to be made whole on a loser. Indeed, I don't view such a trade as "adding to a loser". The trade is only a loser if I'm stopped out by planned criteria. Rather, I'm adding to a good trade at a better price.
But I never add to losers, in the sense of adding to a trade that has hit my planned stop out point. It is often such small exceptions from discipline that lead to far larger and costly ones--much like cheating on diets!