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scarce resources. So from time to time most traders will find themselves anxious to put money to work, yet find that cash is in short supply because all of their capital is already committed to other positions. This is the heart and soul of trading not guessing the market, but marshalling assets and deploying them in the most strategic fashion. Money managers big and small grapple with the same issues: What stays? What goes? How can investment dollars be stretched to generate the maximum return?

For most active traders, margin is the best first choice for stretching their dollars. But as I wrote last summer, debt should be limited to high-probability trades, and not to try and pull a half point out of the Nasdaq-100 Trust or take a flier on some bulletin-board tout. I'm apt to only use margin to add to a position of strength; that is, to support a winning trade in a dominant market trend.

Let's say, for example, that I'm holding a profitable position in Equity Office Properties. With real-estate investment trusts continuing higher in today's market environment, I'd readily use margin to buy a unit of Simon Property Group, which would diversify the winning exposure but keep capital focused on a major, timely trend.

But even using margin, you'll inevitably hit a point where you're looking to make an investment your capital just won't support. So when it's time to start making trades, do yourself a favor and get rid of the losers first. Even in a generally profitable portfolio, if you comb through the basement you'll likely find a name or two that's bleeding and below water. That's the trash to be pitched first.

Human instinct will lead you to "shave" a few shares off your big winners and let the losers ride. It's a tempting approach, but unequivocally the wrong move. Nobody knows the future, but it's my belief that over time losing trades tend to stay losing trades. And because I believe buying El Paso Electric puts me in a much stronger position that continuing to hold a 25% loss in Evergreen Solar, I won't hesitate to reallocate that capital.

If you worry about the losers, the winners take care of themselves. And although it hurts to take a loss, you're essentially buying the benefit of a tax deduction, usually a more valuable asset than an unprofitable open trade. So start with the losers, selling first those positions with the biggest percentage declines, then the smallest positions, and finally the least liquid stocks. Shaving off a portfolio's dead wood will often generate enough fresh capital to move toward even more profitable heights.

Now let's say you've sold all your losers, but you still need fresh capital. Before I dump a real winner, I'll often use a conservative option technique and sell covered calls on a portion of existing profitable trades. For example, rather than cash in the gains on my positions in large-cap utilities like Duke Energy, Southern and Exelon, I'd sell slightly out-of-the-money call options on a portion of each name. In exchange for agreeing to sell those shares at a higher price, I'm able to generate enough premium to fund a few entirely new positions. Should the sector's strength continue, I'd look to buy back the calls or roll them into higher strike prices and future expiration months. Cumbersome? A bit. But it's still a preferable way of raising capital than simply dumping a winning trade. (For more on options, visit SmartMoney.com's Options Center

If options just aren't your style, or for other reasons you're pressed to sell a winning position, my suggestion would be to sell the weakest first. If I have a 10%-15% winner that, over the course of the past few months has shrunk down to a 4%-6% winner, that's where I'd start. Shave off some of those shares to generate fresh capital.

Also, when choosing between open winning trades, my preference would be to sell the most liquid instruments first. As I often point out, a trader makes money by providing liquidity to a speculative situation. If you're in the enviable position of holding a winning trade in a comparatively illiquid name, then let it be. The better move would be to dump a winning trade in Microsoft, SBC Communications or some other actively traded name. Not only can you get back in much more easily and cheaply, but your market sales are less likely to push the price lower, a common occurrence with less-liquid names.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of publication, Hoenig's fund held positions in many of the securities mentioned.