Here’s a scenario that most traders will experience. Trading has been going well and as a result you decide it’s time to start increasing your position size. After all, you’re not looking to change a single thing about how you trade as it’s been working really well.
As an example you decide to increase your position size from £1 per point to £2. Murphy’s Law establishes itself and the first trade you take with the new position size becomes a losing trade. You don’t mind as you almost expected that to happen anyway as a result of Murphy.
But what happens over the next month starts to concern you. Your success rate has dropped and you have in fact had a losing period. Like a seasoned pro, you put it down to coincidence and know that you must trade through the drawdown. However, trading continues to be up and down for the next month. You’ve started to worry about the size of the positions and really don’t like the size of the trades that lose. It’s affecting your ability to take trades and you start cherry picking, trying to only take the very best setups.
This only makes it harder for you as you get to a point where you can’t even decide what a great setup looks like anymore. You’ve hit a brick wall as fear of loss has become too large a factor in your trading. The solution? Downsize your positions to a level where you don’t fear loss. This could even mean going down to 50p per point so that you can find your confidence levels again. Then, once confidence is regained you can start increasing position size once more. The initial problem was that position size had been doubled and this subconsciously was affecting your ability to do what you previously did so well.
The best advice I can give to a trader who wants to start increasing position size is to do it gradually. Small incremental increases are much easier to deal with mentally than trying to make giant leaps. As always, one small step at a time is often the best approach to building that account up. You’ll be amazed at how quickly it can grow even when only making small increases in position size.
Over to the markets, the AUD/USD has had a strong start to the year, rising from lows just above 0.68 to above 0.78, a 1000 pip increase. It has reached its monthly 20sma which could act as potential resistance plus there’s a couple of rising trend-lines that could come into play. In fact the steeper trendline is already breaking which could open the door to a run to the next one. Look at the daily chart because there could be plenty of activity on this pair over the coming weeks with these trend-lines in play…
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