Monday, 5 February 2007

Don't Take Too Many Positions

One of the factors which leads to a trader's big-loss or downfall is "Overtrading" or opening too many positions at any one time. Where this happens and the market goes against you, the losses will be huge.

Imagine you are short (you have sold) one of the major indices, let's say the FTSE100 (the UK major Index) and ... as well as that you have another 10 short positions in some Constitutes of the FTSE100 stocks like Barclays (BARC), Lloyds (LLOY), GlaxoSmithKline (GSK) and so on ...

... and let's say the FT100 has one of its good days and it has gone up by 64 points .... I can tell you, on a day like this your losses will be huge ..... and if you had not done your money management correctly it could be one of those days, which you would get a "Margin Call" from your Broker or even have some of your positions closed in order to free some margins, if your account was deeply in deficit.

So bearing the above scenario in mind, one must always make sure the number of positions which one holds will not overstrech their account.

I would say it would always be best if you did not have more than 3 or 4 open-positions at any given time and these should be positions which you were really confident and comfortable about. Stocks which would normally be played by professional Day Traders would be the ideal stocks to hold if you were a scalper. These are normaly the stocks which would move within a certain narrow or narrowish range. Of course you would need to observe and study the market for a long time before you can make a list of such stocks.

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