Fear and greed
Do not average down, but do average up (add to winners not losers). It’s simple and makes sense, though many traders do not follow this rule. We should put our money into a winning investment not a losing one, but sometimes human nature trumps this. A trader who likes a stock at $25, really loves it at $20. Don’t let ego cloud your judgment.
“Complete picture” (below) displays Bollinger Bands, a trendline indicator, NYSE volume ratios for panic selling and panic buying and entry and exit arrows based on overbought and oversold.
The goal in this uptrend is to buy the green arrows, and tighten stops while locking in partial profits along the way. It is critical to hold a core position with each new trade entry to build (pyramid) the long position over time for maximum gains.
Trading is a tough game to win. We all lose trades, and at times we go through losing streaks that can be difficult. So if a trade starts to go against you, getting stopped out of the trade could be the best thing for that trade. You need to add to winning positions and lock in partial profits along the way. If you do not lock in profits, the market will eventually take them back and then some.
Chris Vermeulen can be contacted through his website www.algotrades.net.