One of the biggest mistakes, which traders do, is something, that they keep replenishing a losing position, recklessly hoping for a trend reversal in exchange rate dynamics. If traders persistently risk their deposit, while the price moves against open positions, then losses often reach the point, when players or are forced to leave the market due to lack of funds, or close their positions with large losses, or dazedly waiting for the inevitable margin call, to already automatically replenish the account. Although initially such a position was supposed to be closed when an acceptable level of loss was reached, and reasonable trader I would continue my trade.
However, some stock traders find themselves in an even more deplorable situation, in which they are forced to constantly replenish their account, maintaining a misplaced position and hoping, that luck will still smile on them, reversed the trend. In this case, a trader can be compared to a driver, who drives his car in the darkness of the night and does not understand, where is he now, and most importantly, where will it go, but, Nevertheless, it continues to move in the chosen direction.
If that happens, he has two ways to solve the problem:
1. Continue blindly driving the same road in hope, that he'll arrive at the right place before, how to be abroad;
2. Turn around the car and return to that place, where did the journey start, or reach Togo places, from which is he can really find a way home.
This is the difference between, to keep going in the wrong direction, and limit your losses to a small position before, as it will be too much late. It should be recognized, what, in the end, the driver can still find his way home over the bumps in the country road like a trader, saving a losing position, still waiting for the necessary turn of events in the market. However, until this happens, our driver might run out of gas, just like a trader can run out of all his capital.
Not do unprofitable Position at all hopeless
Filling up a losing position with your “hard money” means going beyond the limits of possible trading risk, what is not the right way to trade. However, there are times, when replenishing a losing position is the best way to trade. This type of strategy is known as trade on scale.
Plan mine entrance And exit, and be hard
The difference between replenishing a losing position and trading on a scale is the preliminary intention of the trader before, How does he invest in trading?. If his goal is to end up buying just one standard lot (100 000 u.e.) and further, already in profit, he goes to strengthen his position by additional investment 0,1 lot (10 000 u.e.). to get the best average price (instead of, to receive the full reward), then this is trade on scale. This strategy is common among traders, companies buying shares,in a long correction of the main trend, at that moment, when they (traders) don't know yet, how long will it last. In such a situation, the stock trader consistently buys in a period of decline prices on the market in order to obtain the best average price.
The key to resolving the issue, what is this trading strategy – trading on a scale or fear of losing the entire deposit, will be the target of the open position, approved prior to bidding. If a stop order level is defined for all open positions to limit losses, then in that case, the trader is dealing with trading on a scale, otherwise, excessive replenishment of the transaction will be an incorrectly built tactic.
Source Fortrade
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okbm(“http://nysetrader.net/ponimajte-raznicu-mezhdu-popolneniem-ubytochnoj-pozicii-i-torgovlej-po-shkale/”,”Understand the difference between replenishing a losing position and trading on a scale.”)
