News & Analysis

Accumulating into a Profitable Trading Position: A System Checklist

August 21, 2019

Position accumulation is to increase exposure to a currency pair, by adding a second (or more) position in the same trading direction. Although on the surface the opportunity to increase potential return is attractive, there are also risks that MUST be at the forefront of your thinking.

These principles described in this article are appropriate for Share, Index and Commodity CFDs as well as obviously Forex positions.

Are you ready to accumulate?

Before considering position accumulation to your trading behaviour, it is worth considering two important aspects:

  1. This is not a strategy for the beginner trader, but rather when other systems are already in place such as a written trading plan that includes statements that reference risk management approaches, particularly that of appropriate position sizing and clear exit approaches.
  2. Also, logically, as you are potentially increasing exposure with this approach, it is not only having a trading plan that is important, but also a record of follow through with that plan. We know disciplined trading is a challenge for some, so if this is something you are battling with then master this first.

Why a profitable position only?

It is crucial that this is one of the rules of any system you choose to develop. Accumulating into a losing position (akin to ‘dollar cost averaging)’ should be considered a very high-risk strategy. The essence of this approach is that at each accumulation point, as you increase exposure, you manage the additional risk by moving a stop on previous positions at each accumulation point.

Your position accumulation system checklist

As with any aspect of trading behaviour, a measurable set of statements that dictate your actions as part of your trading plan should be developed with reference to your position accumulation.

These statements should be specific, unambiguous and measurable to facilitate consistency in action and allow you to make judgements as to whether any refinements could be made subsequent to a review of a critical mass of such trades.

These may include as a minimum:

  1. Under what market circumstances you would consider accumulating e,g. strong uptrend confirmed across multiple timeframes.
  2. What technical signals are you going to use to signal the time to accumulate (e.g. if into a long position, break of a key price point, subsequent to confirmation of continued uptrend after a retracement or the next technical resistance).
  3. Your trail-stop process e.g. at each accumulation point for all previously opened positions -all opened positions should be treated as one re. your revised exit points as a trade goes in our direction.
  4. Position sizing e.g. accumulate no more than the original position, meaning if you enter 5 mini-lots initially that is the maximum you can add on each accumulation. Remember as you are trailing the initial stop of all accumulated positions you are risk managing through this method.
  5. Your maximum exposure i.e. your total standard lots/contracts you are prepared to enter, e.g. if you accumulate 1 index CFD contract on each occasion how many times are you prepared to do this. Remember, as different instruments are positioned differently in terms of exposure you will have to specify this for each. It would be a nonsense to enter 1 Share CFD contract but may be appropriate to enter 1 gold CFD contract.
  6. Other exit points or reason to delay/refrain from accumulating further e.g. economic data due.

Once your system is complete then it should be tested prospectively, and amended as appropriate, prior to implanting in the reality of your trading practice.

We trust this review of position accumulating will help in your choice as to whether to integrate this into your trading and of course, some of the considerations that are worth exploring and articulating within your plan.
Mike Smith
Educator
GO Markets

Disclaimer
The articles are from GO Markets analysts based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.