In the trading world, not everything goes as we always plan. Sometimes we enter a trade confidently, but the price moves against our expectations. This is where what is known as trade cooling comes into play.
🧊 Meaning of trade cooling:
Trade cooling is a strategy used by some traders when they lose a trade, and it means:
> Adding a new trade in the same direction at a better price to reduce the average entry price, thus reducing the size of the loss when the price rebounds.
In other words: instead of waiting for the price to return to your original entry point to recover your loss, you add a new trade when the price drops further, which gives you a better average entry price.
🧮 Simplified practical example:
Let's say you entered a buy trade on a cryptocurrency called (ABC):
The first trade:
You bought 100 units of ABC at $2.50
Then the price started to drop to 2.00 dollars
Here I decided to use cooling:
You opened a new trade by buying 100 units of the same currency at $2.00
🔽 So, you have two trades now:
Trade at $2.50
Recipe at $2.00
To calculate the average entry price:
= {2.50 + 2.00}=4.5
4.5 / 2= 2.25 dollars
✅ Now, if the price rises again to only $2.25, you would have exited without a loss, instead of waiting for the price to return to $2.50.
✅ Benefits of cooling:
Reduce losses when the price rebounds.
Reducing the break-even point.
It gives the market a new chance to correct without closing the trade at a loss.
⚠️ But beware:
Cooling requires strict capital management.
Do not cool down a losing trade if the market is in a strong downward trend.
There should be strong technical signals indicating that the price might bounce back.
🎯 Quick tip:
Use cooling only if:
The quantity was small.
There were close support levels.
With a clear plan to stop losses in case the price continues to drop.
📝 Summary:
Trade cooling is like trying to "cool down the fire" in a losing trade, but it must be done consciously, not emotionally.
