Can you add to a winner?

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Big week for the US Dollar
October 10, 2021
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CAC looking to overcome barrier
October 16, 2021
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I have a small challenge to those of you who read things that I post. The best thing about this challenge is that it is self-serving for you, and can change your trading life completely. Obviously, this is about adding to winners, something that far too few of us will do.

Most retail traders will, assuming they are somewhat good at trading, will typically open up a trade with a defined stop and target. While this isn’t exactly a horrible way to trade, the reality is that you are putting far too much emphasis on your ability to pick winners and losers. But what if there was a better way? Maybe one that allows you to even prosper longer-term, without being right as often as you are trying to be? That is the magic of adding to your winners.

So this is the thing that a lot of traders don’t think about: Sometimes, the markets will go much further than we think. (This is especially true if you are trading with the trend…which you should be.) So if you added along the way, then it can really supercharge your returns, even if you only add little bits and pieces along the way.

Take a look at the chart below. It shows a potential AUD/CAD short. The think red line is an area that you could sell based upon a support break. Each dashed line on the way down shows places you could have added along the way. The yellow circle highlight shows where a lot of traders may have been aiming for.

While aiming for that target ended up being a nice trade, the reality is that there are several place along the way, and even below there that you could have added. The first one was simply based upon breaking below the short-term support level. Furthermore, think about the idea of adding just 10% of the original position size would have made a massive difference. I know that some people would say “Well what about compounding risks?” I would answer that question with two answers:

  1. Adding at those places doesn’t mean you cannot tighten your stop losses.
  2. If the market doesn’t work out in your favor, none of these additional positions will be added.

The point isn’t to give you a specific percentage for you to add, just that you need to be thinking about this. The biggest thing that could make a difference is that you are looking to get bigger when you are correct. This makes you different than most other traders. When you are correct, go for the jugular, but only as the market allows it.

AUD/CAD chart daily timeframe.
AUD/CAD daily chart with potential addon points.

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