Over the nearly 30 years that I’ve been a trader, I’ve gone through several stylistic changes that have helped me improve my craft, gain confidence, and do the best I can to remove ego from my decision-making process. Of all my various iterations along the way, the thing that has had the biggest impact on my results was learning how to implement an incremental approach to building and managing positions in my portfolio.

Instead of thinking of a trade as a single buy and a single sell, I started to plan out my trades with the intent of making several purchases and sales along the way. Rather than buying at price B and (hopefully) selling at price C (versus price A!), I began viewing a trade as the development of a relationship with a stock that would evolve based on the pricing action, both in the stock as well as the broader market in general. 

One of the biggest mental hurdles that active investors have to overcome is the anxiety that is produced when the first move a new buy makes is down. The entry that the trader stalked turned out to be not so ideal, and the way that they look at that trade moving forward is influenced by that initial emotional reaction. Likewise, the single buy/sell approach also affects our emotions after we make an exit. New traders learn very quickly that nailing the perfect dismount almost never happens. Either we sell too early and miss out on additional gains, or we sell too late and watch as gains evaporate.

Or put another way, trading is imprecise at best, and by utilizing an incremental approach, traders can harness the inevitable market volatility to arrive at better overall entry and exit points. The dynamic of a trade changes dramatically if you aren’t worried about your entry point being perfect. You gain a degree of command over your decisions when you’re focused on adding to your initial position, especially when the add point is at a lower price. An initial position puts the stock on your radar, and from there, you can watch for opportunities to improve your entry, regardless of whether the add points are higher or lower. The important thing is that you are managing a position rather than simply jumping in with both feet and hoping for the best.

One tremendously positive outcome from this sort of approach is that it helps you cultivate patience. You won’t feel the same pressure to have your trade work immediately and any volatility will be an opportunity to work the trade. When your plan includes multiple buys and sells over a period of time, you have no choice but to be patient and allow the pricing action to develop.

There are many other considerations when using a multiple buy and sale approach to trade management. The best way to start is to experiment. Next time you identify a stock you would like to buy, make a plan to break down the entry into three or four separate entries over a specific time frame. See how that approach shifts your thinking, strategies, and emotions.

As much as we’d love for the market to be orderly and make sense, that just simply isn’t the nature of the beast. The best way to deal with that is to utilize an approach that embraces imprecision and randomness.