This is a FullyInformed Members strategy article. Part of the success of handling trading the market direction portfolio is understanding how to commit capital and how to average into positions to control both losses and profits. A stop-loss can go a long way to protecting a trading position whether in the market direction ETFs I use or individual stocks, but it is also important to understand when to commit additional capital to a trade and when to hold back capital. It is capital itself that often can rescue a trade that has turned the wrong way but if the majority of the capital available is tied to the trade, an investor often can end up with larger losses than anticipated.
Know Maximum Losses Upfront
Instead by managing a stop-loss properly and combining it with the knowledge of when to apply additional capital an investor can know up front what the maximum losses in a trade will be. Almost like an option spread strategy, by understanding how to averaging into a trade and combine it with a stop-loss an investor can control at the outset his losses should the trade turn out to be unprofitable.
Boost Profits At The Right Time
At the same time by understanding when to apply additional capital and when not to, an investor can leave himself open to profits and indeed increase those profits simply by knowing when to add more capital to boost the returns and when to remain cautious or to the sidelines.
This strategy article looks at my recent Market Direction Portfolio trades as the example but the knowledge of how to apply this strategy to both control losses and profits can be used on any position, stock or ETF.
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Internal Market Direction Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Ongoing Trades (Members only)
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Put Selling Strategies For Members
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Stock And Option Trades Explained For Members