Trading large positions, moving serious money around, risking, but also profiting. That’s the image we have in our heads once we start trading (or even before). Making it big!
But for most this is a just a destination and the journey towards it holds the keys to not only reaching it but also staying there.
A lot of traders see difficulties when they can actually make the step up towards opening and closing these large positions. Fear of losing your hard-earned gains over the last weeks and months is often found in such situations.
Of course taking more risk can be quite beneficial but every trader should know these three things before they increase their position stakes.
1. Be profitable before trading large positions
Never increase your position sizes before you’ve already found the correct formula for the real trades. Having made some profits before is a prerequisite of increasing your risk.
If that’s not the case then focus on leveling your account and getting some profits on top of your deposit. Only when your real performance allows it (not your personal confidence) – then go bigger.
2. Ease yourself into it
Don’t rush into risking large sums of money that trample over risk management rules and the basics of managing a trading account.
The increase has to be gradual. Just like going for a swim in the sea when you don’t know where the bottom ends. Do several trades with a slight increase of the position, keep your emotions in check and see if there’s more pressure or the opposite – no change in your level of calmness and decision-making.
3. Write down the reasons why you’re trading larger positions
This is a mental exercise that will align you with the change in risk you’re about to experience. Even though it’s presumably a good change, one that will hopefully bring more profits, many people (traders included) struggle with change.
By writing down exactly why you’ve made this decision, it can help you transition to it even more easily, limiting nervousness or anxiety. It will make you think about the risks before you take them.
It could be something along the lines of “I’ve had a 68% hit rate with my trades in the last two months and I want to increase my profits” or”I can deposit more into my account and increase my risk exposure, as long as it is a reasonable percentage of my account”.
Additionally – neuroscience claims that writing down your goals makes them more likely to happen.
4. Calculate percentages, not money
The amount you risk, especially when its increasing, can make you nervous and increase the likelihood of making mistakes.
One way to deal with this is to calculate a percentage of your account that you’re willing to risk. It should also be an amount that won’t make you feel devastated if it were lost.
For example, your standard risk is 2% of your account which is $5000. That means you risk $100 on every trade.
A good way to increase it is to make a jump to 3% of the account and not think about doubling it immediately, or going for even larger amounts before you get your feet wet.
This is especially useful when your account is growing. That way you grow with it and don’t rush into excessive risk.