One of the common trading mistakes that people make is adding to a losing trade. The thinking is that by adding more to the position the original loss will be compensated by an even greater reward. It is an easy mistake to make, but it ends in overexposure to one market. It may work on occasion in your favour, but when it goes wrong the loss is much worse than it ought to have been. So, if you are in a losing trade and you feel angry, avoid the temptation of adding another position for no other reason apart from the fact the initial trade has gone against you.

One solution

If you find this happening to you often then you may want to consider scaling into a position. Rather than entering the full trade, you could enter in stages. In this way, you could enter on pullbacks, but avoid overexposing yourself.

Entering at a better price

Sometimes, when you have a strong fundamental position on a market, a pullback simply represents a better area to enter. A better value entry at a more advantageous price. However, in order to take advantage of this, you must be prepared before your trade to add to a drop in price. The last thing you want to do is to double your exposure for no other reason apart from the fact that you have had a losing trade.

So, if you find yourself adding to a losing position you can consider altering your entry method by reducing your initial risk on the trade. The added advantage of doing this is that you will also help your trading mindset. As a general rule the lower your risk, the easier it is to manage your trades.