HOW-TO: Optimizing FADS for Traders with Investment MindsetIn this tutorial, we’ll explore how the Fractional Accumulation/Distribution Strategy (FADS) can help traders especially with an investment mindset manage risk and build positions systematically. While FADS doesn’t provide the fundamentals of a company which remain the trader’s responsibility, it offers a robust framework for dividing risk, managing emotions, and scaling into positions strategically.
Importance of Dividing Risk by Period and Fractional Allocation
Periodic Positioning
FADS places entries over time rather than committing the entire position at once. This staggered approach reduces the impact of short-term volatility and minimizes the risk of overexposing the capital.
Fractional Allocation
Fractional allocation ensures that capital is allocated dynamically during building a position. This allows traders to scale into positions as the trade develops while spreading out the risk.
Using a high volatility setting, such as a Weekly with period of 12 , optimizes trend capture by filtering out minor fluctuations.
Increasing Accumulation Factor to 1.5 results in avoiding entries at high price levels, improving overall risk.
Increasing the Accumulation Spread to a higher value, such as 1.5 , expands the distance between buy orders. This leads to fewer trades and a more conservative accumulation strategy. In highly volatile markets, a larger distance between entry positions can significantly improve the average cost of trades and contribute to better capital conservation.
To compensate for the reduced number of trades, increasing the Averaging Power intensifies the position sizing proportionate to price action. This balances the overall risk profile by optimizing the average position cost.
This approach mimics the behavior of successful institutional investors, who rarely enter the market with full exposure in a single move. Instead, they build positions over time to reduce emotional decision-making and enhance long-term consistency.
