Layering Entries to Reduce Risk

More often than not, when it comes to blown account, the problem derives from position sizing. When trading Futures, and you have access to a great deal of leverage, it's very easy to go overboard. The tendency to lever-up, either through overconfidence, or an attempt to win back losses, can severely diminish a trader's success.

One thing you can do, however, is layer your positions. Here's one strategy you can employ, however, when trading breakouts.

When trading a breakout, we put on our first trade in anticipation of the break. If you are in a trading range, for example, and are putting on a long position. you would enter at the bottom of the range, putting your stop just below it. The second position would be entered right after the breakout; it might be helpful to put in a buy stop-market order, just above the resistance level, where the sellers are putting their stops. The final position would be added on a re-test of the resistance level, as it turns into support. That way - if the range breaks - you're only going to get stopped out on one contract, rather than two. Concurrently, if it ends up being a failed-breakout, you are likely able to get out a breakeven, because you would still be in profit on your first contract.

I can't tell you how many times I've gotten trapped by entering with full size at the breakout point; it doesn't happen that often, but when it does, the repercussions can be brutal. By layering your entries, however, you can reduce your risk on the trade, and trade sustainably - which should always be our goal.

Although it's a small adaptation, profitable traders are built on thousands of small changes like these, that ultimately lead to a well-rounded, sustainable career. I hope you've found this information useful!