Today we're talking to those of you that play the markets. The long-term investor is not "playing" the markets; he is investing. Those of you that day trade, or buy and sell over just a day or two, are playing the markets. There is a different approach to day trading, and hopefully a much faster return. If you start small and manage your risk early, over time you will learn how to effectively produce consistent profits out of the markets. But this will then result in all sorts of unanticipated problems. For instance: how do you increase your size without taking large losses?
If you have made it to this point in your career, then you have almost certainly taken a long, hard look at how you risk your capital, both in a trade and overall in your account. In a single trade, it is likely that you use a dollar amount of risk to start the trade, and if a bullish position falls to a certain loss amount, you exit. If that loss amount is tied to a point on a chart that you feel is some kind of support, even better.
What you want to focus on now is adding to winners...all of them. While not every trade will result in a long-running winner, they will all give you at least one opportunity to reduce your risk while adding to the trade. So what does this mean?
Do you ever adjust your stop-loss? After a bullish trade moves in your favor by a defined amount, you reduce your risk by raising your stop at least somewhat, right? If not, then you should look at doing this.
Imagine that a trade moves in your favor and allows you to raise your stop-loss to a point where you would only lose half the amount you were initially risking. If at that very same moment you doubled your trade size, you would have the same, initial risk, but double the size. If that trade continues to avoid your stop-loss, then you now have double the size you initially started with - but with the same level of risk you are used to taking.