Averaging technique in money managemnt is mean opened again a new position in accordance with first positions although this time the price moves against the current price of conviction will follow in accordance with our predictions.
Averaging taken when we are convinced that the price changes as opposed to the position that would suit turning back the original prediction by taking a new position in the same direction.
Sample case:
Mr. X predicts that prices will rise so he opened a Buy position.
Not long later the price moves up, and Mr. X continued its analysis and concluded that the price increases further.
He decided …..
New open Buy position again so that for a buy position held Mr. X is now an average of the buy position I and position II buy
After a while and do a thorough analysis, then Mr. X closes its second position so that ultimately Mr. X also get profit
CASE DETAILS:
Mr. A opened a Buy GBP / USD at 1.8850 with the amount of 1 lot. Mr A predicts that soon he could liquidate the position at 1.8900. Therefore, he made for the position of Risk Management: Stop Loss at 1.8800 and Stop Limit at 1.8900.
Apparently the price correction and moves down to 1.8825.
Mr. A back open position Buy GBP / USD at 1.8825 with the amount of 1 lot. He also put a Stop Loss at 1.8800 and Stop Limit at 1.8900.
Then not long after the price fell back and touched 1.8900. Thus Mr. A get 2 profit of 2 positions have been opened: It is known that when the Pip Value of Rp 9200 and commission per lot Rp 50,000.
Position I:
Profit / Loss = Total Lot x {((Position Close – Position Open) x Pip Value) – Cost Per Lot Commission}
Profit / Loss = 1 x {((1.8900 – 1.8850) x 9200) – 50000}
Profit = 1 x {Rp 460,000 – Rp 50,000}
Profit Position I = Rp 410,000, –
Position II:
Profit / Loss = Total Lot x {((Position Close – Position Open) x Pip Value) – Cost Per Lot Commission}
Profit / Loss = 1 x {((1.8900 – 1.8825) x 9200) – 50000}
Profit = 1 x {Rp 690,000 – Rp 50,000}
Profit Position II = Rp 640,000, –
Amount Profit for the second position: Rp 410,000 + USD 640,000 = Rp 1.050.000, –
