The main difference between a novice trader and a professional is how they behave in choosing the volume of a position, as well as how they build this position. While a novice, as a rule, having determined the size of a deal based on analysis and strategy, immediately opens a position for the entire amount, an experienced trader will gradually build up his position using a multi-level approach, where each deal is justified by the success of the previous one.
This approach is particularly useful in trend following systems. The way of gradual entry allows you to manage risks in online forex trading more effectively, while maximizing profits gives emotional benefits. One of the main advantages of this method is the ability to reduce emotional tension, taking small risks for each position. Keeping calm with ten gradual positions of $ 1000 is much easier than managing one big position of $10,000.
With the correct use of stop-losses, we can even run some of our positions risk-free if the scenario that we have in mind is implemented. The gradual market entry method works for long-term and short-term strategies, but it offers an even better risk/return ratio when used as part of a long-term strategy. In the case of long-term trading, our different positions will be less susceptible to market volatility (because they are farther apart) and our profits will be greater due to the amount of time required to trade.
Indeed, in order to minimize spread costs and maximize profits, a strategy of gradual entry is the best in long-term trading. How do you actually apply this method? It’s easy and simple, and we’ll try to explain it with a brief example. Below we see the hourly chart of the GBPAUD pair. We chose it because it shows a clear downward trend that is easy to identify.
The Williams Range Interest Indicator, which we have placed in the bottom window, is a good indicator of price extremes, and although it can give false signals, it is very suitable for analyzing volatile trends and highly directional price movements. Our goal is to trade this trend without making more than one trade at a time and to create our positions as soon as the price action is confirmed. The red down arrows show where the price will touch the trend line and the signal that it is time to open short positions, waiting for the trend line to continue. We will use the extreme values in the Williams generator, at values close to 100, or -100, to take profits and our stop-losses will be placed about 20-30 points above the trend line for each trade. After opening the first position at 2.091, let us note that Williams Oscillator quickly reaches the extremes, forcing us to close our positions with a good profit, and prevents us from using “Layered-entry”. The second position will open at the end, at 2.085, following the extreme value on William’s oscillator (as you can see on the red horizontal line), and when the price reaches 2.083 some time later, we can open another short position. After that, at the specified point on the second horizontal line on the left, we see that Williams Oscillator reaches another extremity, showing that it is time to close both positions for a significant profit. We could also put a stop-loss on the short position opened at 2.085 at the breakeven point when entering the second short position at 2.083, reducing our overall risk. Later, when the price touches the trend line for the fourth time at the place indicated by the fourth down arrow, we can enter two consecutive short positions, closing them again when Williams Oscillator registers the extreme value.
This example was chosen for simplicity of explanation. Traders using this method use different indicators and combinations of indicators. We must strive to find the best offers and try different strategies when searching for those that are best suited to our character, and then combine them, which is the most effective and reasonable way for those who seek to achieve success and credibility in trading.