Quote from Instynct:
rdg,
When I traded single lots, which is in reference to your trading all-in/all-out, it was really stressful for me. I knew that I had only one shot to get it right, and if the trade went my way I was usually too protective of the profit and ended up taking the profit too soon because I did not want to see a winning trade turn into a losing trade. Of course I would then watch price move another 10, 15, 20 handles without me which is also pretty frustrating. If instead the trade went against me, then I would take a loss on a full position (single lot).
When I trade now, I wait for my setup and enter my first contract, let price do its thing and I focus on what price needs to do for me to exit this initial contract for a loss. The reason why I focus on getting out is because even though there is a setup, there is sometimes an initial period where traders are still unsure which way the market wants to go. So I focus on the exit because I want to be mentally prepared and not be like a deer in headlights if the setup doesnât work. Now if the trade starts to work and moves in my favor, I determine what price needs to do in order for me to add more contracts. Once I add, I plan on holding the full position until my price target area is reached. (Sometimes if I feel that price is losing momentum before reaching the price target, then I will start locking in profits and scale out earlier.) Iâm going to get setups that work and ones that donât work. The idea is to lose on one contract and win on a maximum position. With this method I am more comfortable at taking a loss on 1 lot, because I know that once I catch that winner, itâll be on a full position and it will pay for all the small losses I take plus some.
Prior to trading multiple lots, I used to think that doubling my size (going from 1 lot to 2) would be doubling my risk or cost of trade. So if Iâm willing to risk $100 dollars on one contract, then trading two would cost me $200. This is what held me back from trading multiple lots for a while. I found that not to be the case at all. Instead I focus on the price action and I find that itâs very comforting to add more contracts when the charts tell you that you are in a winning trade.
One mistake Iâve been making is adding too soon before price fully confirms itself. This is what accounts for my big losses. This will no doubt be worked out over time as I become better at incorporating this new risk management strategy with the price action reading process.
