Abstract：Now that you know how to set proper stops and identify the best position size, here's a lesson on how to get creative in your trading.
Here's a lesson on how to get creative in your trading now that you know how to create adequate stops and determine the optimal position size.
When trading several position sizes, “scaling” in and out of your holdings allows you to be quite versatile and creative in how you manage your risk.
WHAT DOES SCALLING MEANS？
Scaling in and out of trading positions refers to progressively developing and dumping your position when it reaches key milestones.
Scaling into a trade implies starting with a small position, say 25 shares of a 100-share goal position.
If the market advances in your favor or exhibits good price movement, you add another'layer' to the transaction, and you now have half of your total position. If the price rises more, you may elect to purchase the remaining 50 shares. You've now accumulated your whole position in three buys rather than one.
The same is true for scaling out. Perhaps you sell a portion of your position into strength to capture immediate profits and then place a trailing stop for the remainder.
So, instead of buying or selling your entire position all at once, you do it in smaller increments.
The most important benefit is psychological. Scaling in and out of your position removes the need for precise entrance and departure mechanisms.
No one can predict price movement or the precise turning moment of a market. Expecting to always obtain the best possible entry is much too tough. You're placing yourself in a position to experience a great deal of heartbreak. We can only predict a possible “area” of support/resistance, reversal, momentum change, breakout, and so on. To lock in gains, you can enter your position in parts around certain places and/or take your trade off at various levels. How much less stressful would it be if you didn't have to worry about precisely when to join or quit the market？ Isn't it a lot easier now？
Plus, you don't have to be as accurate as a sniper to catch a move at its inflection point (ooohhh, big word!) to score some pips. It also takes a lot of weight off your shoulders if you can reduce your risk, right？ Why not secure your profits？ Scaling out of winning positions, when done correctly with a trailing stop, can help you protect your profits if the price suddenly reverses. Finally, if you raise the size of your open position and the market continues to move in your favor, your profit per pip will grow.
Scaling is a significant disadvantage when you add more to your position. Is there anyone who can figure out the disadvantage？ You guessed it...YOU INCREASED YOUR TOTAL RISK!! Remember, traders are first and foremost “risk managers,” and “scaling in” badly may wipe out your account!! Fortunately, we'll teach you how to SAFELY add to an open position. The second issue is that eliminating parts of your open position limits your earning potential. Who wants to be the one to pull it off？
If you listen to trading podcasts, you'll notice that converting from 'binary' positioning to scaling in and out of trades is one of the most common game changers for day traders.
They frequently claim that they don't know when the market will flip or how far it will go, so they try to limit the influence of their educated estimates by scaling in and out.
So, while it may be an effective trading strategy, apply it wisely and be aware of the disadvantages.
In the end, trading is an art as well as a science, so if something works consistently, continue with it.
Otherwise, don't be scared to reduce the fat.
How to Scale Your Way Out of Tough Situations
These champions have one thing in common: they not only work their butts off, but they also enjoy what they do.
"Patience is the key to everything," American comic Arnold H. Glasgow once quipped. The chicken is gotten by hatching the egg rather than crushing it."
Ask any Wall Street quant (the highly nerdy math and physics PhDs who build complicated algorithmic trading techniques) why there isn't a "holy grail" indicator, approach, or system that generates revenues on a regular basis.
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