For a Reversed Position

I apply this method rarely, though it is known that many traders use it widely. It seems to me that, in many cases, there is no practical expedi- ency in such an action. Rather, the incentive is elementary greed, the de- sire to recoup and to cover losses as soon as possible. More so, increasing contract size is related to psychology rather than to a trader’s everyday routine (only in a case when such a practice is not part of a mechanical

trading system used by a trader). I think that mistakes or lack of profes- sionalism should not be corrected at the expense of such purely mechani- cal actions as a contract size increase at the moment of position reversal, because the risk also increases accordingly.

When several consecutive losses during the same trading session oc- cur (for example, a choppy market situation took place), increasing con- tract size can result in severe damage to the trading account. Therefore, I apply a double contract size at a position reverse only when there is an opportunity to place a very tight stop. More often, I liquidate the surplus in the contract size as soon as the profit covers the initial loss. Besides, I prefer to double a contract size after two consecutive losses only. If a third one happens this time, I stop trading until the next day, when new trading opportunities and signals will be generated.

Reverse at the Moment of Liquidation of the Previous Profitable Position

I use this scheme rarely, but more often than I apply the technique of dou- bling the contract size. I use it seldom, not because I do not like such an approach, but because such a method requires great accuracy, attention, and certain conditions that need to develop in the market. Unfortunately, in practice, the conditions for this kind of trade are rare, especially for in- traday trading.

The reverse with simultaneous liquidation of a profitable position is possible under two circumstances:

1.The market reaches a strong technical level that it is unlikely to pass.

2.The market gives a signal for opening a position in the opposite direction.

In both cases, a trade execution can be made directly by a trader through a market order, whether he looks after the market at this moment or it is done automatically. The automatic order occurs when an old posi- tion is liquidated through a limit order at the level calculated in advance, that is, directly ahead of strong technical support or resistance. A new po- sition then opens simultaneously by the same order. Externally, it looks like an ordinary limit order but twice the size of the initial contract. In both variations, stops on a new position should be placed beforehand, too.

In the second case, for liquidation of one position and the opening of another position, a trailing stop can also be used along with the doubling size of the usual contract. After an order execution, a new position should be protected immediately by automatic stops.

CHAPTER 16

Date: 2015-12-17; view: 929