Skills on Position Management

Position management is quite technical and, in a way, artistic. Rigid operations are not a good choice. So today, I will mainly share some key points that you may build on in real practice. 

The first principle for position management is to never invest heavily in one position. Many traders, when participating in forex trading, are always thinking quick money overnight. This mindset will lead you a wrong way, making your trading and investment gambling. How to avoid it? One thing that is important is to take good control over your position and never invest heavily in one. I will go into further details on operation later.

Second is to enter and leave the market in batches. When trading, do not open your position or close out one time off. Instead, you should go step by step, based on the market situation. This will help you to remain proactive and enter at a good timing.

Third is to manage the position dynamically. We can combine the trend trading of short-swing with position trading and make a compound position. This involves the dynamic management of the position. Here we will introduce you the first key point regarding operation.

Firstly, in trading, the position has a lot to do with the position your trading capital accounts for in your account principal. It also is interlinked with the leverage. Normally, if the leverage is low, then it takes up a larger portion of capital. Let’s illustrate with a leverage of 100 times.

Above everything, if it’s a 100 times leverage, the right position should be less than 5%. In the circumstances, the trading position will always remain below 5%, and this should be seen as a rule. This is based on the lessons and experiences of many predecessors and we should better obey.

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Secondly, we should also control the loss of a single order under 5%. This is also to make sure that the loss in one particular order will not become a never-ending bottomless pit and in the end resulting in the loss of the principal. These two indexes are both hard targets that you may adjust in accordance to your own habits. But there should be such a parameter and I suggest that you keep the parameter reasonable and not too big. With these two principles fulfilled, I can basically assure that you won’t be wiped out in trading.
The second point, as I said, is to enter and leave the market in batches. Let’s say in USD/CAD in the afternoon market, most of the investors expect the currency pair to fall, then the best way to short this pair is to enter at the right timing.

If the exchange rate continues to fall, which proves you correct, then you can short a little more. If it goes against your expectation and rises, you can take a break from the following operations. Through this mindset of going one step after another, you will be able to manage the risks. If your judgement of the market is proved correct, you can buy more. This is what we call following the trend and buy more when you earn.

Instead if the market begins to bounce back, then you have to think about closing out gradually. You don’t want to close out altogether because it can be a minor bounce-back. If it continues to fall afterwards, then you could have a lot of room to profit. One-off close-out will cost you that possibilities to earn. 

So, instead, you close a part out. Then if the market continues to rise, then it indicates that the trend might be changing and there might even be a bigger bounce-back. At this moment, you can think about closing out gradually. Through this approach of entering and leaving step by step, you can reach a good price position while avoiding risks.

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Thirdly, manage the position dynamically. The market is constantly changing and many times, it is hard to predict. In trading, you will always be questioning the trend and adjust your strategy accordingly. This also matches the ideas of the Art of War by Sun Tzu, the great ancient Chinese philosopher. 

According to Sun Tzu, there are no stable trend in war just like water has no shape, the master of war can adjust the strategy based on the enemy’s changes and win. We could also apply such military ideas into trading. Basically, we actively adjust our position based on the market changes.

According to our above-mentioned principle, for a leverage of 100 times, the position will normally be held under 5%. But the market is constantly changing. If we could adjust in accordance with the market changes, we could harvest more profits and take full advantage by combining the trend, trading and short-term opportunities.

So how to do it? We can control a highest position and a lowest one. Most of the time, we would then have a compound position. If there is 10,000$, the highest position should be 100k, which is a standard lot. Proper position should be maintained below 00:55 and the lowest around 00:25. Why? You would also have a lowest position, mainly for trend traders.

If you, as a trend trader, can constantly adjusting the position in a dynamic manner when the market situation lasts, you would always have some mid-to-long term trendy complaints there. You cannot close them all out. So based on such principal, you should invest a bigger position at the beginning of the trend.

If the trend starts and you begin to profit nicely, then you could close a part out in case the trend comes to an end or adjustment at this time. At this moment, we can do some short-time trading and close out some complaints. When the market finishes adjustment, we can add in the position again. Through such kind of dynamic adjustments, we can take full advantage of the trend trading and short-term trading opportunities.

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