since it means your losers will be twice as big. Ok you buy 2 contracts. But you lose. Double loss. Now you do it again. Hey, you get some profit. Better close one out and lock in that profit. Now price goes against you back to the beginning. You now have half of what you should have made. Remembering that loss from before this trade, you're now in the negative. If you think price is still going to go up, why not buy more rather than sell something?
In your scenario the mkt has to first move against you then move in your favor then move back against you. If you think about it there are only two possibilities. 1. It moves in your favor and then reverses against you. 2. It moves against you then reverses and moves back in your favor. Those are the only two possibilities. Now time. If it moves in your favor for a week and then moves against you for a year...but yes, everything will eventually move in your favor and everything will eventually move against you. So I see no difference in buying a long or covering a short, in both cases I am a buyer looking for a lower price. And none of this has anything to do with your average price. But yes I will agree, for those of us that add to and subtract from our positions there is always the risk of big adverse moves on large size, and then big favorable moves but on smaller size. For some reason, adding is never a problem. It's the subtracting where all the pain occurs. That's why I just keep adding until I run out of money because Lord knows when that happens there will be Hell to pay.
IMO, you have to have the mentality that marks matter. You are making and losing money every minute the market is open, you only realize those gains/loss when you close. It will free you to do what is right when making the decisions to adjust, add or close a positions.
Ever heard of the saying "sell with regret" ?? Prices don't always go up you know !!! There is absolutely nothing wrong with profit-taking (whether full or partial). When you've reached a decent amount of profit, take some of the money off the table and then let the rest of it run (if you think it still has room to run). Trust me, there's nothing worse than watching something go all the way up ..... .... and then all the way down again because of your greed to make more money. I have been there, done that, got the postcard. I have watched something go up 20% and then said to myself "nah, I'll just leave it there" ... and then the next day some company news comes out and you're suddenly negative 30%. ALWAYS ALWAYS ALWAYS take profit. Never look for reasons not to, always look for reasons to do so. You don't have to close your entire position ... just take some money off the table !! The key to successful trading or investing is to be CONSISTENT. I really couldn't care less how much more money I could have made on any single trade. What I care about is that I can make successful trades on a CONSISTENT basis.
What makes my life easy is all my trades have profit targets - if price is not acting right in some cases I will move my stop up - the kind of moves I am after are hundreds of basis points - so I have to let the profits run.
Your comment is fine, but remember that anytime someone says anything like this all the posters here are like YOU SOLD TOO EARLY which means basically you get complained at for whatever you do. Everyone says they let their losers go and close winners too early.
"Fixed that for ya' ..." To other people, it's sometimes a fundamental and essential part of the way they make their livings through their trading, because their results have proven that it collectively maximises their edge. It can be a way of combining locking in some profit on a trade with also taking the opportunity to develop further profit. People vary greatly in the relative extents to which "fear of losses" and "fear of missing out on potential profits" affect their decision-making. Personally, with some of my entry-types (the ones for which I've reliably proven it to be beneficial, naturally enough), I close a proportion of the trade at a level which locks in some collective profit on the whole trade, and let the rest run (if it will) adjusting its stop-loss manually as it does so. (That applies to some of the trades I make which might catch the start of a new intraday trend, following a reversal.) Van Tharp, in his book Trade Your Way to Financial Freedom, shares your view that scaling out is, broadly speaking, a bad idea, because it tends, overall, to lead to having most at risk at the times when the odds tend to be least in your favour, but there are definitely some exceptions to that (including some of the methods I routinely use, myself). So, these things are a little more complicated than one expects from the superficial view, and the reality is that a whole range of interacting variables can sometimes be involved, even occasionally in ways that change the validity of the conclusion. One size does not fit all.
You guys realize you are basically saying you think price is going to keep going up so you are getting to where you are decreasing your position.
When are the odds more in your favor compared to less in your favor after entering a trade without believing that a trade that has gone in your direction is more likely to keep going in your direction?
The short (but perhaps not particularly helpful) answer is "when your testing proves that that's so" - as it sometimes does. Sorry; I don't quite understand what you mean by this qualification ... please excuse me: it's been a long day, here ...