A frequent question I get from traders would be: Why I add futures contracts into my market place? That is a broad issue and there's no single right answer. Let's break down the query into some situations.

First, if your trading plan calls for the scaling in to a trading place, then adding to an existing position will be prudent. For instance, let us say a trader plans on entering a very long soybean commerce with three trades. His first leg to the trade might be at $4.40, and also the second leg at $4.60 and his third leg of this trade will be at the $4.80 level. If the market activity plays out the way the trader anticipated in his initial trading plan, he would be adding to his current place twice. Again, this trader is adhering to his initial trading plan.

Let's look at another situation: A trader enters a very long soybean futures trade at $4.40, and he's got an upside objective of $4.80. That is his trading plan. But when prices reach $4.80, the general feeling among the soybean marketplace is that prices will monitor still higher--possibly much higher. The trader decides that rather than either placing a very tight trailing sell stop or exiting the trade (as was his original plan), he will add a few more contracts for his already-profitable place --although he didn't have this thought in his first plan of trading activity. This is not a way to trade. Reason: The trader got swept up in the emotion of a bullish run from the soybean market. He got greedy. Emotions can destroy a trader. That is trading egies ought to be followed. Don't let the heightened emotions of being in the market change your trading decisions.

The 1 emotion that could quickly take someone from this intriguing business of trading futures contract is greed. In the trading situation, the trader who desired to add into an already-profitable place exhibited greed. It was not sufficient for him that he can pull a $2,000 profit from a single-contract trade (as anticipated in his first trading plan). He wanted more. It's this kind of rationale that many times leads to trading ruin.

Most seasoned traders agree that incorporating contracts into a losing position is a recipe for disaster. Trying to typical a commerce down should NEVER be tried, NEVER.

One more factor to consider when adding contracts into an existing place --even to some profitable one--is that a move against you has become multiplied by the number of contracts you just added. Even though this is likely readily apparent to the majority of traders, what is sometimes missed is the rapidity at which profits can evaporate when trades are added to an existing profitable place and the market then moves modestly against you personally. You will get rid of all of your initial profit--and then some--like obtaining a margin call.

Ultimately, many prudent traders of numerous contracts in 1 place will actually trade fewer contracts as their profits accrue. For instance, let us state the soybean trader who had three lots (contracts) from the example above has been accrue profits as prices climb above $5.00. He might then start to scale from his winning commerce by selling one lot at $5.10, and then one at $5.20, and then perhaps he will let the last lot ride with a tight trailing protective sell stop.


Jim Wyckoff