Reducing positions in trading during times of high market volatility is necessary because:
1. Risk Management: Cutting back on positions helps you limit losses when the market moves against your predictions. This protects your account and maintains capital for future trades.
2. Reducing Psychological Pressure: When you have too many open positions, you may feel stressed and find it hard to concentrate. Reducing positions helps alleviate psychological pressure and makes it easier to manage your trades.
3. Optimizing Performance: Focusing on high-potential trades instead of spreading yourself too thin across many trades will enhance your overall performance.
4. Easier Tracking: Having fewer positions allows you to track and analyze each trade more easily, leading to better and more effective decision-making.
5. Avoiding Information Overload: When you have too many positions, you can become overwhelmed with information and market fluctuations, which may lead to poor decisions.
You know, before stormy seasons, people often prune trees with dense branches. This helps the trees withstand strong winds from the storm and reduces the risk of being uprooted.
Similarly, in business, investing, or trading, cutting unnecessary costs, personnel, and trading positions before major fluctuations is extremely important. It will lighten our minds and enhance our performance. And when big storms come, we won't be knocked down.
Reducing positions doesn’t mean you have to miss trading opportunities; rather, it’s a way to manage risk and ensure you can focus on trades with a higher likelihood of success.
"Profits in trading often come from patience and waiting."- J.Livermore
