Taking more than one position

This is something I've been considering lately... Wondering what you all thought. Normally, when I take out a trade, it almost alway goes against me initially (like in the first minutes after taking it). So what I'm wondering, for example, if I took out a trade, with a 20 pip stop loss, would it be better to say enter a trade for 3 lots right off the bat, and live with the result either way (risking 3 lots for -20 pips) or perhaps take 1 lot trade, then if the trade goes against me 10 pips, enter a 2nd lot, and then if it continues to go against me to 15 pips, enter the 3rd lot (risking 1 lot at -20, 1 lot at -10 and 1 lot at -5).

The risk seems to be less this way, but the winners would obviously most likely be less profitable as well unless you happen to find yourself at one point -15 and then it turns your way (which would also get you to break even quicker). So I guess my question is, what seems like the better situation?

Thoughts?

So nobody with any thoughts on this? I could use some thoughts or suggestions on this. Possible downsides to this approach???

I'm not sure why you're trying to do this either way...your stop loss should be located someplace that tells you that you were wrong in your call. Put up your risk at your entry, and if you're wrong you're wrong. Don't throw good money after bad in the hope that it turns around.

Nate,

What you're describing is called "averaging down". Traders tend to use it when they're unsure about which entry level to take.

IMO it's OK to spread your total risk over multiple trades. So if you're allowing 1.5% risk per trade, then it would be acceptable to have 3 different entry points at 0.5% risk each.

However, with every MM technique, there's always a drawback that balances each benefit. With averaging down it is this: every time you lose on all of the (multiple) positions, your account takes the full brunt of the loss. But when you win, it's possible that the subsequent positions never get triggered, hence your wins will, on average, be underweight compared to your losses.

Adding indiscriminately to a losing positions, or averaging down without limit, is one of the quickest ways to dig yourself into a deep hole. Risk management is the most important consideration of prudent trading.

IMO it's always important to have proven analysis-based reasons to enter a trade, and proven analysis-based reasons to exit. (I posted some ideas here). Otherwise we are merely guessing, and therefore gambling.

David

I play with this at times, multiple positions example :-


Say you think 1.32000 on the EU will hold but where will it turn your at 1.3215 so go long and it slips against you, less cost more upside so logically why not get another average down gives you a lower price BE exit point if the trade turns bad to.

Bad side :-

It's easy from there, to move your SL 10 more pips and take a 4th or 5th position then suddenly you've lost 3x's your initial risk you get emotional and put a huge dent in the account.

Don't get me wrong, it works great but you have to not move your SL and risk beyond your max risk ability, most of the time I don't balls this up, but when I do the account becomes majorly at risk and has been emptied on huge fast moves against me on more than 1 occasion.

For this reason I've switched to fixed 6pip SL ish area to small for me to care about so I don't get emotional and don't get gambly and blow the entire damn account.

Other issue is, get a good trade and only 1st position in then you really don't make that much, so the losers being -20 - 15 - 10 = 45 pips take out 2-3 winners.

Adding to a trade is part of my methodology. ...there is always more than one point of entry to a trade... every one of those points are shown in momentum from HTF to LTF. I add up to three levels and more of S/R according to tf that i have entered on.
All enties and exits should be drawn and taken on analysis., technical imho. As long as your technicals are sound. , nothing wrong in adding postion according to risk management.

Nate04, I recommend you read the Phantom of the Pits pdf. It's a long read but you'll develop a better appreciation of planning trade sizes and building into positions.

Thank you everyone for your replies! I may demo with this idea for awhile and see how my account would handle it compared to just setting 1 position and living with it (what I do presently). Thanks again everyone. I really do appreciate it.

It might also make sense to break up a trade into one limit order and two stop orders.

For example if you are going long, then you set a limit order slightly below the entry price you planned to use if going with one order. This way, when the price pulls back slightly, your entry is entered as a tad bit of a better price.

You also set two buy stop orders at the same time you set up your limit order. Se both of these a few pips above the planned entry price if going with the single trade. So maybe a limit order at -2 pips from original price, a buy stop at +1 pips from original price, and a second buy stop at +2.

The effect is that if price moves against you instantly, it will trigger your limit order which, if price quickly turns around and heads back in your direction, it will reach your T/P sooner. It will also trigger the buy stop orders and, if price moves enough then all three mini-orders will go in profit. If, however, price continues going against you and you stop out, then you just cancel the pending stop orders and sit grateful that you only took 1/3 the loss that you could have taken with a single position.

The downsides, as mentioned previously, are still there. Price could go against you enough to trigger the limit order, then up enough to trigger both buy orders, and then back down hard to take out all three. It could just go straight up from the get-go and trigger the buy stop orders alone which, if they end up winning, means you earned a 2/3 weight win. If the 2/3 weight win scenario happens too much and the full-weight loss happens too much, then the system becomes less profitable than if one just used a single order.