Compounding is when you are already in a trade and another setup presents itself. This would be a setup that you would certainly take if you were in no position.
For example: Let's say you are in a $1000 long position on NVDA which you entered when the price was at $100, and since then NVDA has now reached $200. Next, NVDA retraces 10% to $180, which has a strong support level and Fibonacci confluence for a bounce and continuation to the upside.
You are already in profit, but the market has presented a strong setup which you would certainly take if you were in no trade. So in this circumstance, you add another $1000 to NVDA at $180, while moving your stop loss up to protect your current profits.
These setups are for advanced traders and allow for one to maximise their profit potential.
Compounding is when you are already in a trade and another setup presents itself. This would be a setup that you would certainly take if you were in no position.
For example: Let's say you are in a $1000 long position on NVDA which you entered when the price was at $100, and since then NVDA has now reached $200. Next, NVDA retraces 10% to $180, which has a strong support level and Fibonacci confluence for a bounce and continuation to the upside.
You are already in profit, but the market has presented a strong setup which you would certainly take if you were in no trade. So in this circumstance, you add another $1000 to NVDA at $180, while moving your stop loss up to protect your current profits.
These setups are for advanced traders and allow for one to maximise their profit potential.
Key Points of the Lesson
UTILITY
Compounding ⇒ maximize returns by entering a trade within a trade.
Averaging Down ⇒ navigate out of a losing position that still has technical merit.
Laddering ⇒ spread out entries and take profit targets.
COMPOUNDING
Step 1 ⇒ you enter a trade setup meeting your strict criteria for confluence and market context.
Step 2 ⇒ the trade develops well in your favour, and another same-direction opportunity presents itself.
Step 3 ⇒ The new opportunity would be a valid trade on its own, add to the original position.
AVERAGING DOWN
“Save” a losing position that still has a chance from a technical perspective ⇒ close trade at break-even.
Required advanced trading execution, risk management, strict rules and emotional stability.
Use only in exceptional cases, not recommended for new traders.
LADDERING
Excellent technique to gradually enter and exit positions.
With careful planning, you can spread out entries over a range/area of interest.
Laddering out of position with different take profit targets is also recommended.
TIPS & TRICKS
Advanced trading techniques⇒ might not suit your style of trading.
Laddering in and out of positions is the safest, it offers flexibility.
Compounding and averaging down is not for beginners.
TAKE HOME MESSAGE
Compounding allows for a trade within a trade, and maximize results.
Averaging down is useful to navigate out of losing positions on rare occasions.
Laddering provides flexible entering into and exiting of positions.