Potential drawbacks

Posted by Scriptaty | 1:09 AM

Every trading approach has its drawbacks. In the first example, you are vulnerable to a quick reversal if price just reaches the 161.8-percent target level and then quickly falls back through the original entry level — and perhaps through the stop — resulting in a larger loss than if you had simply entered all at once at the original price of 1.3250. In the second example you are vulnerable to being under-invested if price moves favorably right away and over-invested in a losing position if it doesn’t.

Ultimately, these strategies can help you to better manage positions by responding to market action. As Lukeman contends in his book, professionals understand prices are always fluid and they never make the mistake of committing all their speculative capital to a single price point.