Investment Technique--Adding Positions

Ⅰ The essence of adding positions.

The first thing to be clear is that adding positions is an investment technique, which is a tool, not an objective. The purpose of investment is to obtain return with the minimum risk. Therefore, adding positions is useful only when it helps the investor achieve the above purpose, otherwise, it should be abandoned. Like the Diamond Sutra says, all the principles are valuable only if they are helpful, if not, they should be abnegated, let alone those could not be called as principles.

Ⅱ Suitable investors for adding to positions.

In terms of analytical ability, investors who can at least make accurate judgments on the market trend of the next week are suitable for adding positions (this requires investors not only to pay attention to the charts, but also to care about fundamentals, weather, policies, etc.). Based on operation rhythm, this technique is applicable for those combine short-term investment with mid-term investment. According to the amount of funds, it is suitable for larger funds. When 80% of the positions are available, adding positions is out of consideration. It is suitable to add positions if the proportion of reserve fund and current fund reaches or exceeds 1:1.

Ⅲ Why should we increase our positions instead of opening them all at once?

Normally, positions need to be added in following situations:

1. Entering at once is quite possible to be found, if the fund is too large. If an investor opens more than 150 at a time and do the same thing for many days in a row, he/she may be easily caught and swallowed by organization. At this time, it is necessary to add positions in several small chunks.
2. We’d better add positions when fundamental changes are found, but the technical aspects have not yet been reflected. As we all know, the speculative market is not always rational and often has its emotional side. For example, when the fundamentals are good, the graphics will often shake or even fall a bit, and vice verse. Thus, if you want to occupy a favorable position without the risk of shocks, you need to choose split investment.

Ⅳ Usage of adding positions

Positions are usually added in a pyramid-style. Take going long as an example, we usually buy a part at the bottom, such as 80 lots, and then buy another 60 lots when the market reaches a certain position, and if the price rises again, buy another 40 lots by that analogy. In this way, we can always ensure that holding costs are lower than the average market price, because the number of low-level purchases is always higher than high-level ones. When you think that the market is about to change, you can sell the share all at once or twice as quickly as possible when it is even.

Ⅴ Attentions

1. Before adopting this technique, you need to be very familiar with the rules of the to-be-operated assets and your own mentality changes at various stages, so that you know yourself as well your enemy. To do this, you need to at least track at least one round of the assets from rising to falling or from falling to rising.
2. This method can only be applied when the asset is out of the unilateral trend supported by fundamentals. If it is used in a shock or is reversing, it often pays off. Using it during fluctuation or reversal will usually lead to loss.

3. Stick to the pyramid principle. Only by doing this can you ensure the cost is lower than market price.

4. Generally, adding positions is combined with even break and initiative lockup.

5. Always keep in mind that adding positions is only a technique for more profit.