Cost Averaging vs. Martingale Strategy: Why You Should Add to Winners, Not Losers

Jasper Osita - Market Analyst

2025-09-12 09:38:32

Let’s be honest. At some point, you’ve probably felt the urge to add to a losing trade. Maybe you told yourself: “If I buy more down here, my average price improves… I just need a small bounce, and I’m out green.”

That urge is common, and it’s exactly why so many retail traders repeat the same mistakes. If you haven’t yet, read why most traders fail - not because they lack setups, but because of behavior and risk choices that sabotage otherwise decent ideas: Why 90% of Retail Traders Fail Even with Profitable Trading Strategies.

Sound familiar? You’re not alone. This is one of the most common traps traders fall into, and it’s not just about bad math - it’s about how your brain is wired.

If you want the bigger picture of how to think like a price-action trader instead of reacting to pain, this is a useful primer: How to Think Like a Price Action Trader.

Before we dive into Cost Averaging and the Martingale Strategy, let’s talk about why traders do this in the first place.

Why Do Traders Add to Losers?

When you take a loss, your brain screams for relief. It doesn’t want to accept pain; it wants to “fix” the situation. That’s why averaging down feels so tempting - it gives you the illusion that you’re in control, that you’re one step closer to getting back to breakeven.

If you’ve ever been stopped out right before the market reversed and then chased back in, you’ve tasted the psychology behind liquidity traps: Outsmarting Stop Hunts: The Psychology Behind the Trap.

But here’s the kicker: every time you add to a loser, your brain releases a small hit of dopamine. It’s the same chemical rush gamblers get pulling the lever on a slot machine.

You lose → pain.
You add more → hope.
Price ticks slightly in your favor → dopamine reward.

That loop is addictive. And it’s why so many traders keep digging deeper into losing trades until the account blows. If this resonates, build guardrails now - start here: Top 10 Ways to Prevent Emotional Trading and Stay Disciplined and reinforce it with daily routines that protect your edge: The Daily Habits of Profitable Traders.

So the real question is: how do you break the loop? That’s where understanding Cost Averaging and Martingale comes in.

What Exactly Is Cost Averaging?

You’ve probably heard of Dollar-Cost Averaging in investing - buying a fixed amount of an asset at regular intervals, no matter the price. Traders adapt this idea by scaling into positions with smaller entries instead of going “all-in” on one price. When you do apply it as a trader, make sure it’s rooted in structure - key levels, session behavior, and multi-timeframe alignment:

Levels: Mastering Price Action at Key Levels
Timeframes: The Power of Multi-Timeframe Analysis in SMC

It sounds smart, right? Spread your entries, smooth your risk, and avoid obsessing over the perfect entry point. And yes - when done correctly, it can be.

But here’s the catch: if you cost average blindly, without confirmation, you’re basically doing Martingale in slow motion. You’re still adding to losers, just in smaller bites. If you want a clean way to avoid that trap, wait for retests and confirmation instead of “buying the dip” on hope: Mastering Retests: Enter with Confirmation After a Breakout.

That’s why cost averaging is a double-edged sword. With structure, it’s useful. Without it, it’s just another way to justify bad behavior.

So, What’s the Martingale Strategy?

Martingale comes straight out of 18th-century gambling halls. The idea was simple: every time you lose, double your bet. Eventually, a win will come, and it’ll cover all the losses plus give you profit equal to your first wager.

Traders borrowed this system. Let’s say you go long, price drops, you add double. It drops again, you add double again. The hope is that when it finally bounces, you’re back in profit.

In theory, it looks clever. In reality? It’s Russian roulette with your account. If the market trends longer than your balance can handle, it’s game over. For a deeper dive into why this “works until it doesn’t,” read: Martingale Strategy in Trading: Compounding Power or Double-Edged Sword?

That’s why Martingale isn’t really a strategy - it’s a gamble disguised as math.

Cost Averaging vs. Martingale

Here’s how they stack up:

Aspect	Cost Averaging	Martingale
Philosophy	Build gradually at planned levels	Double down after losses
Focus	Smooth entries (if confirmed)	Recover losses
Risk Profile	Controlled if disciplined	Explodes exponentially
Psychology	Patience, structure	Dopamine-driven hope
Outcome	Useful with confirmation	Account blow-up waiting to happen

But notice something important: both can go wrong if you’re adding to losers without a plan. Which is why the shift you’re about to see matters so much.

The Smarter Shift: Add to Winners, Not Losers

Here’s the mindset that separates professionals from gamblers: don’t build bigger positions when you’re wrong. Build them when you’re right.

This approach is often called Anti-Martingale or pyramiding.

Instead of digging deeper into a bad trade, you stack into a good one. If you want a simple breakdown of how to structure that around the open, start here: How To Trade & Scalp Indices at the Open Using SMC.

Think of it this way:

Wrong trade? You cut it fast.
Right trade? You add as the market confirms your bias (classic breakout + retest logic: How to Trade Breakouts Effectively).

That way, your biggest exposure only happens when you’re already in profit - not when you’re trying to rescue a sinking ship. And yes, that still lives under the umbrella of risk math you can’t ignore: Risk of Ruin in Trading.

Why Adding to Winners Feels So Hard

Here’s the twist: adding to losers feels safe. You’re convinced you’re getting a better price. Adding to winners, on the other hand, feels scary. You’re worried about giving back profit or getting “top-ticked.”

But feelings aren’t facts. Adding to losers is where accounts die. Adding to winners - done with structure - is where accounts grow. To retrain that instinct, solidify identity-based rules and routines: Identity-Based Trading: Become Your System and pair it with a daily process: The Daily Habits of Profitable Traders.

You need to retrain it.

How to Add to Winners Without Blowing Up

Alright, so how do you actually do it? Here’s a framework:

Plan Your Scaling Levels

Only add after confirmation - breaks of structure, retests, or clear continuation setups.

If you need a walkthrough on confirmation logic, this helps: Mastering Retests.

Make Each Add Smaller

First add might be 1 lot, second 0.7, third 0.5. This keeps your pyramid balanced.

For broader context on managing trend participation, revisit: Moving Averages Trading Strategy Playbook.

Protect Earlier Entries

As you add, move previous stops to breakeven or into profit. You’re now playing with “house money.” Execution discipline matters more than the setup: The Mental Game of Execution.

Cap Your Total Risk

Decide upfront: maybe 2%–3% max on the entire idea. No exceptions. If you’re unsure how much to risk, bookmark this trio:

Know When to Stop

If momentum slows or structure fails, stop stacking. And if you’re stepping up size as you win, do it methodically, not emotionally: Scaling in Trading: When & How to Increase Lot Sizes.

A Quick Example

Picture this: you’re trading NASDAQ during the New York open. If you’re new to that session’s personality, this is a great scene-setter: Mastering the New York Session – SMC Guide.

First entry: Long after a liquidity sweep and bullish structure break. Risk = 1%.
Second entry: Price rallies in your favor, pulls back, you add 0.7%. First entry stop is now breakeven.
Third entry: Another breakout and retest shows strength, you add 0.5%.

Total risk never exceeds ~2%, but your position grows stronger as the market confirms your idea. That’s the essence of adding to winners. If you prefer a different vehicle, the logic maps to gold trading as well - see the full playbook: Complete Step-by-Step Guide to Day Trading Gold (SMC).

Real-Life Analogy: Climbing a Mountain

Here’s how I want you to picture it:

Martingale: climbing down a ladder that’s breaking rung by rung. You keep stepping harder, hoping the next one holds. Eventually, the ladder collapses.
Blind Cost Averaging: walking up a mountain but adding heavy rocks to your backpack on loose ground. One slip, and you tumble.
Adding to Winners: climbing with ropes and anchors. Every step is secured before you add more weight. Even if one step slips, you don’t fall all the way back.

Which climber would you rather be? If your answer is the one with anchors, make sure your anchors are real risk rules, not wishful thinking: Why Risk Management Is the Only Edge That Lasts.

Final Thoughts

Both cost averaging and Martingale involve scaling, but only one has the potential to keep you in the game - and even then, only if done with confirmation.

Martingale? A blow-up waiting to happen.
Blind cost averaging? Not much safer. Use retests and structure to avoid becoming a slow-motion Martingale (confirmation guide).
Adding to winners with structure? That’s where growth happens.

So here’s your takeaway:

Don’t add to losers. Add to winners. Train yourself to feel that dopamine kick not when you average down, but when you pyramid a trade that’s already paying you.

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Suggested Learning Path

If you’re not sure where to start, follow this roadmap:

Start with Trading Psychology → Build the mindset first.
Move into Risk Management → Learn how to protect capital.
Explore Strategies & Tools → Candlesticks, Fibonacci, MAs, Indicators.
Apply to Assets → Gold, Indices, Forex sessions.
Advance to Smart Money Concepts (SMC) → Learn how institutions trade.
Specialize → Stop Hunts, News Trading, Turmoil Navigation.

This way, you’ll grow from foundation → application → mastery, instead of jumping around randomly.

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This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

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Jasper has been in the markets since 2019 trading currencies, indices and commodities like Gold. His approach in the market is heavily accompanied by technical analysis and of course, supported by fundamentals. He has a background in trading proprietary firms and has been teaching students how to navigate themselves in the markets from basic to advance concepts.

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