Averaging a Trade can be a useful method to learn.

Although this is probably a slightly advanced technique it is useful if used properly.

But it will increase your liability and so should be used with caution.

If I think I am going to use averaging on a trade then I generally use a smaller stake to start with.

Again I advise you to use this with caution.

I want to show you a screen shot from one of Bernard’s Trades to make my point.

What people don’t generally realise is that Bernard is prepared to trade up to around £100 to get is profit.

So he breaks his stakes in to £25 chunks so that he can use “Averaging” if he needs to.

In the above example he puts his first bet in at a price of 4.30 but it goes against him so he puts another bet in at 4.40 and it still goes against him…

…So he finally adds another bet into the market at 4.50.

Now I don’t know how quickly the price dropped but as you can see he traded out at 4.20 which was actually 1 tick below his original 4.30 bet.

He could have probably traded out around 4.30 and still made a profit.

What averaging does is move up the price so it doesn’t have to drop so low for you to make a profit.

Now I have put £2.50 in and as you can see I can trade out at 2.2 for 1 tick.

But now the trade has gone against me (a lot more than I hoped!) now note I can trade out at 2.2 but what happens when I add another £2.50

Now I can trade out at 2.32. By adding more money into the market and taking a higher price my trade out level has also moved up.

Another £2.50 allows me to trade out at 2.34 with a profit and is nowhere near the drop I would have need back down at 2.22.

And because the price did come back down a little I could get my 1 tick trade

Now you have to remember my liability was jumping up by £2.50 each time but as I had split my stake my liability was still under control.

And that is the key.

You have to use averaging with caution and don’t go stupid because your liability will be increasing all the time.