Simultaneously Reverse and Liquidate an Unprofitable Position

Simultaneously opening a new position in the opposite direction and liqui- dating a previous one is a quite normal and natural action for me. Why not? Things went wrong—not as I was hoping in the beginning while making my trading plan. The market has to go somewhere and there are just two pos- sible directions for that. So I don’t hesitate. I had better take a position where the market goes, instead of sitting and doing nothing after the stops were triggered. Because I try not to have an opinion about future market behavior and its direction, I do not feel any stress in relation to liquidation of one position and opening the opposite one. Really, why should I worry if there is a confirmation that the market is choosing the opposite direction and it is possible to earn money trading either way? By receiving confirma- tion that the market is not going to follow in a direction originally selected in accordance with my initial plan, it would be quite logical to try to achieve success by reversing a position. In such cases, the new position usually opens automatically at the moment the stops trigger. My only con- cern is that such an action always has to be part of the initial trading plan. Like the rules of stops placing that we discussed, opening a new position at reverse also has to be carried out using similar tactics. However, in order

to make a decision to reverse a position, there should be some certain terms and preconditions met to avoid possible problems and complica- tions. There are also some times when the reverse is not recommended be- cause it can be too risky.

The presence of the following factors will favor position reverse, if they occur at the moment of reverse:

• The market breaks a major technical level, which can be determined at the analysis of intermediate- and long-term charts.

• There is an opportunity to place tight stops, and the risk taken doesn’t exceed a safe level in case of possible loss.

• The market is active and its speed is high.

• The intraday range is broadening.

• There is an expressed intermediate-term trend in the direction of the newly open position.

The reverse of a position can appear inexpedient and risky if:

• Activity of the market and its speed are rather low.

• The reversed position will be open against the main direction of the day.

• The new position will be directed against the intermediate trend.

• There are less than two hours before the end of a trading day.

• The market has already formed or exceeded its average daily amplitude.

• The point of reverse is not tied to any significant technical level.

• The nearest technical level suitable for placing stops is too far from it and is outside an acceptable range.

These common reasons are not rigid rules, and the decision should be made with regard to the particular situation. Some preliminary analysis and consideration of several possible variations should also be done. In any case, the decision to reverse a position should be made in advance and be part of the whole trading plan from the time the initial position was opened. The reverse is best when you place the stop that will be activated at the same price at which the initial position was liquidated.

Contract Size Increase (Doubling)

Date: 2015-12-17; view: 857