As one enters a trade, one is making a bet– he is not sure if it is a good trade. My question is then after the entry, what would make him more sure that it is a good trade so that he would add to his positions? Is it the condition that the position is in profit, or that it is in a loss, or regardless? If regardless, then what else?

The conventional wisdom seems to say that one should never add to a losing position citing martingale reasoning on random bets. While I understand the logic, I don't know how to accept the reasoning in trading. Perhaps my question is whether trade results are really random or not. The evidence that with the right strategies many are making consistent money trading clearly says no to that. My own test also can not prove that adding to a losing position would clearly lead to failures.

So how should one really determine how to add to his positions? Would someone kindly advise on this matter?





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1 Comment so far

  1. Ed on December 7, 2012 8:12 pm

    Mr. Jia, I see it this way:

    There is no useful additional information unless enough additional information exists to make an updated estimate of forward expectation, regardless of if the trade is above or below water, or indeed regardless of if you are in the market or out of it.

    If forward expectation goes higher, you add. if it goes down, you reduce. And this notion must then be evaluated and managed relative to your capital position and risk constraints.


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