There's a second more subtle piece of knowledge which sounds obvious but reveals the insight of the process, which is that you cannot know which of the initial moves is going to become the big winner.
With hindsight we can say that was a big winner I should have put on 50 units! But this is actually death unless you are purely mechanical and have rigorous statistical support for your bet sizing. I.e. you know how many times a trade set up will become a disproportionately big winner.
What it really points towards for me is that as a winner continues to win it's survivability rate actually climbs, so a move that's gone 5% in one direction is actually a lot more likely (say 15%) to continue in the same direction than a trade thats gone 1% in your favour (which is probably just white noise).
A move that's 10% in your favour has a much higher probability of continuing in your favour than reversing because so few trades actually go that far. Maybe only 3 trades will have moved 15% historically so your chance of becoming one of 4 all time 15% is 25% which is better than 15% chance, which better than the white noise.
It's like every hall of famer a sport person passes, the more likely they are to be the greatest of all time (as measured by stats). Hence add to your winners but don't spend a 100 million bucks on a college prospect.
This doesn't sound like you are very confident in your positions.
This doesn't sound like you are very confident in your positions.
Enter, if it goes in my direction keep adding. Picture you adding at 20 with an exit at 19, it goes to 21 and you buy one more. If you move your stop up to 20 your risk is now 2, not 1. Here, an equal move against you will have more loss than you would originally. You have to move the exit to 20.5 in this case.
The math that you mentioned is wrong.
Secondly, a new trade is only added when the SL on the one before can be moved higher to balance the new risk. So, as Cat88 says -
buy Trade 1 at 20 with SL at 19: account capital risk = -1
buy Trade 2 at 21 with SL at 20, move Trade 1 SL to 20: total account capital risk = -1
buy Trade 3 at 22 with SL at 21, move SL Trade 1 to 21, move SL Trade 2 to 21: total account capital risk = 0
From this point there is never any account capital risk arising from additional trades but the profit side increases parabolically.
Your math above is wrong.
Buy 1 at 20, SL 19, loss 1.
Buy 1 at 21, you are now long 2 at 20.5 and your stop has to be 20.
Buy 1 at 22, and you are now long 3 at 21. Your stop has to be 20 2/3.
As in your example, the SL is already getting considerably narrower after just 3 trades: after 6 or 7 it would be likely to be hit by just mild volatility.
Exactly why I don't add to winning trades.
Listen, you're talking to a guy who understands that being long and short at the same time is not the same as having a smaller position open in one direction. I get that even though the math is the same, they're not the same. I get that not combining all your positions into one is different than how I did it, even though they calculate out the same.
I cannot imagine a system in which you keep adding when it's going in your favor. Buy at 50, it goes to 51 so you buy another, it goes to 52 so you buy another. Really? Do you just treat them separately? Contract is now down to 51, what do you do? You're net even, +1, +0, -1.