Accumulating into a Profitable FX Position: Opportunities and Risk Management

Position accumulation is to increase exposure to a currency pair, by adding a second (or more) position in the same trading direction. Although on the surface the opportunity to increase potential return is attractive, there are also risks that MUST be at the forefront of your thinking.

Are you ready to accumulate?
Before considering position accumulation to your trading behaviour, it is worth considering two important aspects.
This is not a strategy for the trader beginners, but rather when other systems are already in place such as a written trading plan that includes statements that reference risk management approaches, particularly that of appropriate position sizing and clear exit approaches.
Also, logically, as you are potentially increasing exposure with this approach, it is not only having a trading plan that is important, but also a record of follow through with that plan. We know disciplined trading is a challenge for some, so if this is something you are battling with than master this first.

Why a profitable position only?
It is crucial that this is one of the rules of any system you choose to develop. Accumulating into a losing position (akin to ‘dollar cost averaging)’ should be considered a very high-risk strategy. The essence of this approach is that at each accumulation point, as you increase exposure, you manage the additional risk by moving a stop on previous positions at each accumulation point.

Your position accumulation system
As with any aspect of trading behaviour, a measurable set of statements that dictate your actions as part of your trading plan should be developed with reference to your position accumulation.

These statements may include as a minimum:
a. Under what market circumstances you would consider accumulating e,g. strong uptrend confirmed across multiple timeframes.
b. What technical signals are you going to use to signal the time to accumulate (e.g. if into a long position break of a key point, subsequent to confirmation of continued uptrend after a retracement.
c. Your trail-stop process e.g. at each accumulation point for all previously opened positions -all opened positions should be treated as one re, exit point.
d. Position sizing e.g. accumulate no more than the original position, meaning if you enter 5 mini-lots initially that is the maximum you can add on each accumulation.
e. Your maximum exposure e.g. 2 standard lots
f. Other exit points or reason to delay/refrain from accumulating further e.g. economic data.
Once your system is complete then it should be tested prospectively, and amended as appropriate, prior to implanting in the reality of your trading practice.

We trust this review of position accumulating will help in your choice as to whether to integrate this into your trading strategy and of course, some of the considerations that are worth exploring.