Trading Forex Requires Caution: Adding Positions Along the Trend

Making profits in forex margin trading inevitably requires the use of some advanced strategies! Adding positions along the trend is one of them, but it’s also difficult to execute properly. If done poorly, it can amplify losses! Today, we’ll analyze where to add positions, how much to add, and how to do it.

First, let’s look at the conditions for adding positions along the trend:

1. The trend has been established—how to confirm this? Use your trading system, such as moving averages!

2. A strong trend typically shows consistent new highs or lows without sharp back-and-forth fluctuations, so avoid ranging markets! This can be verified using moving averages or trendlines.

3. Supporting momentum indicators, such as ADX or RSI, should show strong momentum or a fresh breakout.

Second, let’s examine the best positions to add:

1. Breakout addition—this works well when the market accelerates, adding on each new high. However, the downside is that after breaking a new high, a brief pullback may trap positions.

2. Pullback addition—this is relatively safer but has drawbacks. Many traders, including experienced ones, struggle to time pullbacks correctly, often missing opportunities.

3. Regardless of how you add, the key prerequisite is confirming the trend’s establishment. A bad entry today might become a great entry tomorrow, especially in a strong trend. Have you experienced this? Thus, the exact entry point isn’t the most crucial—what matters most is money management!

Third, how much to add? The flexibility of money management

We know the maximum risk per trade is 5%—an iron rule! So, how do we maintain this discipline when adding positions? By careful calculation and strict control.

Example:

• Account balance: $4,000

• Initial position: $200 (1:100 leverage)

• First entry: 5% of capital ($200), trading 20,000 units.

• If the market moves 200 pips in our favor, then retraces 100 pips, we prepare to add.

Regardless of adjusting stops, position size, or where the new stop is placed, the total risk of all positions must stay within 5%! Due to various factors, exact calculations aren’t provided here, but key considerations include:

1. Profit from the original position

2. Whether the original stop is adjusted (recalculate risk if so)

3. Size of the added position

4. Stop-loss of the added position

Finally, sum up all positions’ risks—if the total equals 5%, proceed!