Part V. Sophisticated Trading Tactics / Chapter 3. Position Locking

The next trading tactic we will discuss is called position hedging. It is somewhat more complex than the two tactics mentioned earlier but deserves equal attention as it is widely used by professional traders and serves as a mechanism to avoid losses and maximize profits.

Let's say you have opened a long position but misjudged the price movement, which starts moving downwards. As the price approaches your imaginary stop-loss level, you realize that you rushed into opening the position and that the price should eventually turn in your favor in the long term. However, you understand that your protective deposit may not be enough to withstand the adverse price movement. In this case, you can achieve two goals at once by opening a position in the opposite direction at a certain price level. This way, the current losses on one position will be offset by the current profits on the other position, and the current deposit level will be maintained. Once the price reaches the anticipated minimum level, after which you believe a reversal should occur, you can close the short position with a profit, thereby replenishing your protective deposit. Now you no longer face the risk of a margin call and can wait for the price to return to the desired level to close the initial long position with a profit.

When using the tactic of trading along an upward trend, you should buy at the lower boundary of the price range and sell at the upper boundary. Conversely, in a downward trend, the approach is reversed. It is worth noting that using this approach when trading against the trend is not recommended, as it can result in significant losses. If you open short positions at the resistance level during an upward trend, there is a risk of closing them with a stop-loss if the price does not fall back to the local minimum.

Part V. Sophisticated Trading Tactics / Chapter 4. Position Reversal and Addition to Position

In conclusion to the section of our Forex education dedicated to trading tactics, we will discuss two more tactics: position reversal and position adding. Both tactics are widely used by professional traders and deserve to be covered in our education.

The position reversal tactic works as follows: Suppose you have opened a position and after some time, you realize that your decision was incorrect, and there is no chance of making any profit or closing the position at breakeven. In such a case, most traders simply close the position either manually or through a stop-loss order, while some overly optimistic traders may hope for a miracle. However, professionals promptly close the position and immediately open a new position in the opposite direction. This way, the loss from the initial position can be offset by potential profits from the new position.

Regarding the position adding tactic, here's how it works: Suppose you have made the correct decision, and the price is moving in your desired direction. By analyzing past price movements, you have identified several important levels on the chart that the price has previously tested. After each level is breached, you add additional lots to the already open position. The more significant the price level that is breached, the more you add to the position, and vice versa. Once the price reaches your predetermined level, you close the position with a profit. The overall profit is then accumulated from the profits of all positions opened in the direction of the price movement.

As you can see, by using sophisticated tactics, you can increase the expected profit and avoid unnecessary losses. However, it takes time to start using these described tactics because the actions mentioned above should be applied automatically or incorporated into a mechanical trading system.

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