THE HAnDbook of TECHnICAl AnAlysIsand position scaling appropriate for the type of market behavior being
observed.- Optimizing Capital Compounding: The trader must employ an appropri-
ate level of compounding in order to maximize profit over the longer‐term
horizon. - Optimizing Profit Disposals: Being profitable over the shorter term is not suffi-
cient to ensure longer‐term survivability as a trader. One reason why so many
accounts fail to succeed over the longer term is related to the spending of prof-
its. The entire trading campaign is one based on the balance of probabilities.
As such, all withdrawals of profit endanger the account by reducing its ability
to withstand or buffer against futures loses. - Reinvesting Profits with Higher $risk Exposure: Once the account has accrued
sufficient profit to withstand and buffer against the largest expected draw-
down associated with a particular trading methodology or system, some profit
may be reinvested with larger tradesizes, with the intention of making larger
returns over shorter price excursions.
See Figure 28.4.Maximizing positional exposure
In order to maximize positional exposure, we need to have as many simultane-
ous open orders in the market as possible. But this is not viable if each open po-
sition is still exposed to directional risk, as this would raise the total percentage
or absolute dollar risk at any one moment in time to inordinate and unaccept-
able levels, exposing the trader to a very high probability of experiencing risk
figure 28.4 Sequence of Determination during the Dynamic Money Management
Stage.