Making trade adjustments can help you reduce losses to some extend but not eliminate loss. For example sometimes option buyers average out buying options. Like buying at 10 then 7 then 5, thinking that since the average buy rate has come down, if the stock takes a U-Turn they can exit in profits.
Very rarely it happens, their entire money invested becomes zero (option expires worthless). There is only 1% chance that within limited time-frame the stock revives and takes a U-turn and the trade becomes either profitable or the trader exits with a small loss.
Fact is, if the trade was entered poorly the Trade Adjustments will not be helpful at all. It can either minimize losses or sometimes increase the loss.
For example if a trade with 80% success rate makes 1000 rupees and loses 4000 rupees then that 80% win rate is useless.
Here it is:
+1000
+1000
+1000
+1000
-4000
+1000
+1000
+1000
-4000
+1000
=======
Net ZERO
========
Imp Tip: If you make sure that your losses are reduced by 50% then the same trade above will be profitable.
+1000
+1000
+1000
+1000
-2000
+1000
+1000
+1000
-2000
+1000
=======
Net +4000
========
For this to happen you have to ensure:
1) Good entry points – entry time is very important for the trade to be profitable.
2) Proper stop loss placement.
Note that one trade is not enough. If you decided to trade something you must trade at least 10 times to see if it’s a good trade for the long term or not.
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