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