Adding profitable positions
The tactic of adding positions has long been familiar to Forex traders. It's based on gradually
increasing the size of profitable positions, thereby improving overall financial results.
Often, after opening your first order, you notice that the trend is moving in the desired direction and several dozen pips have already been earned. There's no sign of a reversal, so you immediately open another order in the same direction. This step is called adding a position.
But despite the apparent simplicity of the process, there are many nuances to consider when opening a new order.
Adding forex positions involves key considerations such as correctly calculating the second order size, measures to preserve profits from the first position, and choosing the most favorable market entry point.
One should not forget about control over the existing trend of the exchange rate movement.
1. When to open a second order – after the price for the first order is already in the breakeven zone and the profit is at least 10 pips (for short-term trading). The trend is moving confidently in the desired direction, and there are no signs of a reversal anytime soon.
In this case, the spread size for the second order should not exceed the amount of profit received. For example, if you earned $10 on the first order, then when placing the second, the losses should not exceed $5.
2. Entrance point to the market – The trend usually moves with small pullbacks, so the most successful entry points are the beginning of a move in the direction of the main trend after a pullback (correction). As shown in the figure.
For this reason, you should never rush into opening a second position; you should wait for a correction, which will definitely follow.
3. Size – the main principle for choosing the lot size when adding a position is that the losses upon opening (spread) should not exceed 50% of the profit on the first position.
4. Profit-taking – before opening a second order, move the stop-loss to the breakeven zone and lock in the profit. Do this carefully, taking into account the maximum pullback. When placing each subsequent order, remember to set stop orders.
5. The maximum number of new positions allowed is two, as experience shows that a trend reversal can occur during this time, and managing a large number of orders adds additional complexity.
To improve efficiency, you can install a close-all-positions script in your trader's terminal. This will allow you to close all orders almost instantly.
I sometimes use this tactic myself, although I only add one position at a time and try to close as soon as the second order starts making a profit.
