Never Add to a Losing Trade/Pound Cost Averaging
OK, this now comes down to personal choice. For a view on strategies you might like to look up Van Tharp: http://www.iitm.com I have no vested interest here but he even raises the point of entry not being as important as exit.
So what am I on about? Trade 7 gave us prices for those calls at strikes 7000,7050 and 7100 of 18.5, 9.5, and 5.5. Today the market dropped and I recall seeing those prices around 13, 6 and 4. So what, this is a losing trade right?
Here’s the Thing
You have choices (or options if you prefer). You could close out whichever positions you took for a small loss, but you could add to the existing positions, for less money. You have to ask yourself the question:
Have the reasons for entering this trade changed?
The US is heading for all time highs, Trump has been digested and is no longer news. The market does not care which genius/idiot is running the show, the market likes certainty. The market LOVES a full on 100% red meat eating capitalist at the helm, so it would seem that the US is bullish. Seasonality favours a rise. The 1st of the month approaches(the new money enters the market), non-farm payrolls on the first Friday of December may be a big nothing.
What Could Possibly Go Wrong?
The market is subject to shocks like anything else, but I’d be thinking fund managers want a good end to the year. I take a personal view – the markets may see a rise with FTSE being dragged over that 7000 mark. That is JUST an opinion, in order to learn from this trade. So if you favoured the simple buy of the 7000 call with ‘unlimited’ profit potential,then you’d buy again today at 13, so your average buy price is now (18.5 +13)/2= 15.75.
