Two different methods of adding to an existing trade or position

Assume you trade with R250k account. You opened a long position in Capitec and it is trending upwards. You already know not to risk more than 2% per trade, so max R5k risked on the initial trade (shown as #1 below). You could either get out completely or add to your existing position. The chart below shows the different opportunities to add at each time it bounces off the support line.

Adding to a Capitec trade 5 times

Add equal amounts or pyramid

Adding equal amounts is simple – you first risked 2% of R250 = R5k, so just keep on risking R5k on each subsequent buy. You’ll have a bigger total exposure. Alternatively you can ‘pyramid’ – opening the position with 100% risk (the R5k) but adding a smaller amount each time, like 75%, then 50%, then 25% of the initial R5k. This strategy leads to a much reduced total exposure on the trade and you may get to a risk-free situation much quicker – now you have a smaller trade with no money on the table. As below.

Grab the sheets used here, if you want to play around with is yourself, or check the math.

ADDING EXAMPLE

Keep it simple

Another, much simpler, way would be to just take profit on half of your position when it hits your initial profit target and then let the remainder run on with a trailing stop. Unless you want to play around with spreadsheets all day, this is probably the way to go. 

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