When managing your trading positions, certain strategies can lead to unnecessary risk, while others can help you capitalize on success. In accordance with our mission to prepare you for trading in live markets with our real capital, here’s a breakdown of what to steer clear of and what’s acceptable when trading with ETF:
Avoid Martingale Strategies
Entering a new position larger than the previous losing position to recover a loss is strictly prohibited. This high-risk tactic can quickly amplify losses and erode your capital, especially in volatile markets. We strongly advise against using Martingale as a position management strategy.
Don’t Add to Losing Positions
Adding to a losing position, or Dollar-Cost Averaging (DCA), is also strictly prohibited. Based upon our data and experience, adding to a losing trade in hopes of averaging out your entry price often leads to deeper losses and ties up capital that could be better used elsewhere. Resist the urge to “average down” when the market isn’t in your favor.
Adding to Winning Positions Is a Green Light
On the flip side, if your position is moving in your favor, adding to a winning trade can be a smart move. Scaling into a position that’s already profitable allows you to maximize gains while riding the momentum. This approach aligns with proper risk management and allows your winners to run, a principle many successful traders follow.
Key Takeaway
Effective position management is about discipline and risk control. Avoid strategies like Martingale and adding to losing positions, as they can jeopardize your account. Instead, consider only adding to winning positions when the market is working in your favor to make the most of your winning trades.