Is It Possible To Increase Your Market

Position While Minimizing Your Risk?

 

 

This article looks at the idea of increasing your position while minimizing your exposure.  

 

Most traders focus much, if not all, of their time on entry and exits. 

 

What I want to illustrate today is the element of risk in contrast with the amount of shares/contracts held.

 

Let me explain with an example.

 

Here we have a table I'll be referencing.

 

 

A.

Price

Entry

Stop

Risk

# of shares

 

Unit 1

$20

$20

$19

-$1

100

-$100

 

 

 

 

 

 

 

B.

 

 

 

 

 

 

Unit 2

$21

$21

$20

-$1

100

-100

Unit 1

 

$20

$20

$0

100

0

 

 

 

 

-$1

 

-$100

C.

 

 

 

 

 

 

Unit 3

$22

$22

$21

-$1

100

-100

Unit 2

 

$21

$21

$0

100

0

Unit 1

 

$20

$21

$1

100

100

 

 

 

 

$0

 

$0

D.

 

 

 

 

 

 

Unit 4

$23

$23

$22

-$1

100

-100

Unit 3

 

$22

$22

$0

100

0

Unit 2

 

$21

$22

$1

100

100

Unit 1

 

$20

$22

$2

100

200

 

 

 

 

 

 

$200

 

 

Look at (A). We have the current price at $20, if we enter at that price and set a stop $1 below our entry (assuming a long), we'd be risking $1 per share.  If we get stopped out, we're down $100.

 

Simple enough.

 

Now consider that the market moves our way, and goes to $21 and we decide to add another unit. 

 

A unit in this example is simply a number of shares or contracts that you decide to trade.  In the Market-Millions course we show you how to go about calculating how much you should hold per unit.  For this example you can simply imagine it to be 100 shares.

 

So when the price moves up to $21 we enter another unit (100 shares) and adjust the stops for both unit 1 and 2 to $20 ($1 below the current entry price).

 

As you can see from (B), our total risk, if the market moves against us, would still be $100.  This is because unit 2 would exit at $1 loss per share, while unit 1 exits even.

 

We've effectively doubled our holdings while maintaining the same level of risk.

 

It gets even better…

 

Look at (C)… by continuing on this sequence of adding a unit at every dollar, while raising the stops, we control more with less risk.

 

And finally at (D), we have a profit locked in with 4 units, or 400 shares in this example.

 

There are many other considerations to make with trades.  The purpose of this example was to show you other aspects to consider when working out your own trading strategy. 

 

By incorporating risk management and money management along side your entry and exit strategies, you can put yourself in a better position to make more when you're right, while minimizing your losses when you’re wrong.

 

If you're interested in learning how Market-Millions addresses money management along with other aspects of trading, please check it out at:  http://www.market-millions.com/ez/go.php?mm.6

 

Ray