How to maximize profits with position adding?

The financial trading market is where legends of wealth are created, characterized notably by high returns often accompanied by high risks.

Stable profit is the common goal pursued by every market participant. Though trading strategies may seem commonplace, achieving financial freedom in the financial market without sound trading strategies and capital management is akin to wishful thinking.

I. The Necessity of Position Adding in Trading

Most traders start with light positions to learn trading and test market conditions. However, the significant market volatility means that light trading positions offer limited profit potential.

While sticking to conventional methods is essential, perfecting and implementing reasonable position-adding techniques can enhance trading outcomes.

Entering the market with fixed positions significantly discounts profit potential. For instance, in a clear trend, if traders fail to add positions to seize opportunities decisively, they might have to wait until the next opportunity arises, which could be a long time. Although the market presents numerous opportunities, individuals can grasp very few.

Therefore, traders must bravely add positions in trending markets to improve the risk-reward ratio of trades and maximize profits.

The selection of where to add positions must be based on one’s trading strategy and complemented by a strict position-adding strategy. Position-adding should be influential only when done under risk control and protection of existing profits; otherwise, blind position-adding will only expose one’s account to risks.

In trading, every strategy has pros and cons, which apply to adding positions in floating profits and losses. Whether to add positions entirely depends on a trader’s sharp market judgment and psychological readiness.

Trading outcomes rely on individual trading plans, and without adequate preparation, losses are inevitable. So, how should one specifically operate?

II. Adding Positions in Response to Floating Profits

Adding positions in response to floating profits is a double-edged sword. It can be used when there is a firm grasp of the trend, emphasizing high-probability events and proceeding step by step.

Generally, extreme rallies or plunges are rare, with range-bound oscillations and gradual uptrends or downtrends being more common. For extreme market conditions, strictly adhere to the entry positions and stop losses to control risks. The key is to avoid frequent errors when determining the primary trend direction.

After the trading system signals an entry, and traders enter accordingly and set stop losses (e.g., 2% of total funds), if the market moves in the entry direction and profits are generated, dynamic position adding can be done while keeping losses unchanged or decreasing. Additional stop losses can be set based on positions.

Some successful traders maximize potential profits by adding positions in floating profits. However, this trading technique may pose some psychological challenges for novice traders.

For instance, when the market trend moves against traders, the speed at which profits disappear may surpass the speed at which profits are realized. For novices, this is one of the most difficult psychological hurdles to overcome: the fear of “turning profitable trades into losing ones.”

In trading, the fear of “turning profitable trades into losing ones” is extreme, often leading novice and experienced traders to exit trades prematurely, missing out on significant profits.

Traders can overcome this by practicing this technique multiple times through simulated trading, reviewing price trends/systems, gaining experience and confidence, transferring them to real accounts, and strictly adhering to trading principles during operations.

III. Adding Positions in Response to Floating Losses

Some traders realize they entered too early and hope to improve their average price by adding to losing positions.

While this is a valid argument, if traders fail to plan their trades, this mentality can lead to potential risks. Subjective “hope” and “adding to losing positions” are dangerous for trading accounts.

Many traders must objectively evaluate positions and identify reasons for losses when facing floating losses. They disregard the current situation, hoping that increasing their trading volume will steer the market in their favor. In the end, they deceive themselves.

Repeatedly doing this and experiencing consecutive stop-loss trades when positions are arbitrarily piled up can result in massive losses. The only solution is for traders to avoid this trap by pre-determining maximum risk, entry and exit levels, and position sizes.

In summary, whether it’s averaging down for long positions or averaging up for short positions, we don’t recommend novices adopt or attempt this practice, especially before establishing their risk management discipline.