Note: this article only applies to traders without Stop loss and in isolated margin mode...
First, let's talk about what NOT to do:
Averaging infinitely:
Averaging a position can save you from an unnecessary loss, but if you keep adding capital to a losing position you could suffer a considerable loss...
Averaging with a smaller amount than the initial position:
If your initial position is $100 and then you add a second position of $50, the initial position will have more weight than the second, therefore, the average purchase or sale price, as the case may be, will not change much...
That said, I will now proceed to explain the correct way to do it...
There must be a limit:
For example, if your total capital is $1,000, and you want to risk 5% of your entire capital in that trade, you must do the following:
That 5%, which is $50, you will divide into three parts, the first, which will be your initial position, will be $12.50, the second also $12.50, and the third $25, making a total of $50....
Then, you will open a first position of $12.50, after it is executing, you will check what your liquidation price is and you will place a limit order with $12.50 a little before that price... With the aim of avoiding liquidation...
If the price reaches your second order and is executed, your liquidation price will change, then you will place another limit order with $25 a little before your new liquidation price...
Once that's done, you just have to wait, if it still goes wrong, you will have no choice but to accept the loss, without falling into the mistake of continuing to risk a larger percentage of your capital....
In most cases, and especially if you do it using a fairly low leverage, doing this will allow you to save a losing trade...
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Regards...! 👋
May you continue to improve every day...! 🤝
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