Replenishing a position is a buying behavior carried out to reduce the cost of a stock that has fallen due to being hedged. Replenishment is a passive coping strategy after being trapped, which is not a good way to break free in itself, but it is the most suitable method in certain specific situations. Many friends replenish their positions as soon as they fall, which is not very good. Unless your funds are infinite, do not plan to settle at the bottom and top at once, because you don't know where the bottom and top are, and there may not be a bottom and top at all.

The essence of replenishment

Replenishing positions is an investment technique, a tool, not a goal. The purpose of investment is to obtain returns with minimal risk, so it is only useful when replenishing positions can help investors achieve the above goals, otherwise it must be abandoned.

Applicable objects of replenishment

In terms of trading rhythm, adding positions is suitable for investors who combine short and medium term investments; In terms of the amount of funds, replenishment is suitable for larger funds. If 80% of the position has already been used, do not consider replenishment, or when the ratio of reserve funds to current funds reaches or exceeds 1:1, it is a suitable strategy for replenishment.

How to use replenishment

There are basically three situations for replenishment: the first is an inverted pyramid, where the amount of each replenishment is greater than the original position; The second type is the uniform formula, which means that the amount added each time is the same; The third type is pyramid, which means that the amount added each time is half less than the previous batch of transactions.

The commonly used method is the pyramid trading method, which involves buying a portion at the bottom, such as 80 lots, and then buying 60 lots when the market reaches a certain level. As the market continues to rise, another 40 lots are bought, and so on. Because the quantity of buying at low levels is always greater than that at high levels, one can always ensure that their holding cost is lower than the market average price.

The correct way to replenish positions is to follow the trend and maintain a pyramid shaped buying price structure, so that the average price is relatively low and safety can be ensured during price fluctuations.

The timing for replenishing inventory

In the early stages of a bear market, it is not possible to replenish positions. Those who trade stocks understand this principle, but what if some investors cannot distinguish between bull and bear turning points? There is a very simple solution: if the stock price does not fall deeply, we will resolutely not replenish our position.

The market has not stabilized and there is no need to replenish positions. When the market is in a downtrend or experiencing a rebound, it is not possible to replenish positions, as further declines in the stock index will drag down the majority of individual stocks, except for a very small number of stocks that have strengthened against the trend. The best time to replenish positions is when the index is at a relatively low level or has just reversed upwards. At this point, the potential for an increase is enormous, and the possibility of a decrease is minimal, making it safer to replenish positions.

Weak stocks are not replenished. Especially for those unbranded stocks that do not rise when the market rises and fall when the market falls. Because the purpose of replenishing the position is to use the profits from the stocks that were later replenished to compensate for the losses of the stocks that were previously hedged. Since this is the case, there is no need to limit oneself to replenishing the varieties that were originally hedged. It's not crucial what variety to replenish the warehouse with, the key is to obtain the maximum profit from the replenished variety, which is the key consideration.

Seize the opportunity to replenish inventory and strive for success in one go.

Precautions for replenishing inventory

This technique can only be used when the fundamentals of the market support the trend to move out of a one-sided trend. If it is used during a volatile trend or a reversal, it is often not worth the loss.

We must follow the principle of pyramid to ensure that our costs are lower than the market.

Always realize that filling positions and making orders is just a technique, and filling positions is for making money. Don't fill positions just for the sake of filling them.

If you are not very clear about stocks, don't rush to operate. First, you need to systematically learn some professional books on stocks, and then actually operate. Find the suitable operation method from the operation, and relatively speaking, the losses you will face will be much smaller, and the tolerance required is not much. After finding your own method, it will become easier to make profits.