When it comes to trading, trader makes a lot of mistakes that lead to destruction. One big mistake traders make is that keep on adding a losing position, and they hope this way thing will start reversing. As long as a trader will continue exposing himself, the loss will grow so higher and then they will have to close out their position until a margin call will save them. In this situation, a smart trader would never let destruction come in his way, and he will try to close out things rather than carrying it forward.
Some traders, however, like to carry on this way, and they hope things might get changed for them in the future. We would like to link this scenario with a driver driving at night, and he is not sure whether he is moving on the right or wrong track. In this situation, two things are likely to happen:
• If you decide to keep on moving blindly, you are likely to get distracted from your journey, and you will find yourself probably in another state.
• The second option is to look back, turn your car and follow the reverse path from where you actually started. This way if you keep on moving, you will likely to reach at your home.
You will observe the difference if you keep on moving forward stubbornly, and cutting down your losses before it’s too late. This way, you might reach to where you have started at the beginning. Going further in the wrong direction will just sink you and won’t give you any positive thing. However, one thing is for sure, you might run out of your capital just like a driver will run out of his car fuel.
Never turn a bad position to be worse.
If you keep on adding a losing position and goes beyond your estimated risk, you are on the wrong spot. However, there are some extreme conditions in which adding to the loss might actually help you out. In the forex world, this strategy is called scaling in.
Carefully plan entry and exit and then stick to the plan
The difference between scaling in and adding to a loser should be your first intent before you jump in to trade.
If you decide to purchase a lot of 10,000 and then decides to choose a position of clips to gain a better average price, then this known as scaling in. This is one famous strategy for those traders they are looking forward to purchasing retrenchment from a border trend, and they are not very certain that how far this retrenchment will go. To get the better average price traders will use a trick to scale in. The important thing is that this trick is being placed into the action before the start of the trading session. The intent is usually a difference between adding up into the loser position and scaling in.