Now that you understand how to establish adequate stops and determine the optimal position size, here’s a lesson on how to be more creative in your trading
For those that trade multiple position sizes, “scaling” in and out of your holdings allows you to be extremely versatile and creative in how you manage your risk.
What is Scalling?
What is “scalling” and why would you see it?
Scaling is the process of introducing or removing units from your initial open position.
Scaling can assist you in adjusting your overall risk, locking in earnings, or maximizing your profit potential.
Of course, when you add or remove positions, there are certain drawbacks to consider.
In the next sections, we’ll go over the advantages and disadvantages of scaling in and out of trades.
Benefits of Scaling
The most significant advantage is psychological.
Scaling in and out of your position removes the requirement to be flawless in your entry and exi
No one can reliably predict market price behavior or the precise turning point.
It’s far too tough to expect to always achieve the best entry possible. You are preparing for a lot of heartbreak.
We can only define a “area” of probable support/resistance, reversal, momentum shift, breakout, and so
To lock in profits, you might enter your position in chunks around certain locations and/or take your trade off at separate levels. How much simpler would it be on you mentally if you didn’t have to precisely identify where you entered or exited the market? Isn’t it much simpler?
Plus, you don’t have to be a sharpshooter to catch a move at its inflection point (ooohhh, huge word!) to get some pips!
It also takes a lot of weight off your shoulders if you can lessen danger, doesn’t it? How about securing profits?
Scaling out of winning positions, when properly performed with a trailing stop, can assist you secure your winnings in the event that the price abruptly reverses.
Finally, if you increase the size of your open position and the market continues to move in your favor, your larger position size will increase the amount you will make per pip.
Drawback of Scaling
When you add more to your position, the main disadvantage of scaling becomes obvious. Can anyone predict what that disadvantage is?
You got it…YOU EXTEND YOUR OVERALL RISK!!
Remember, traders are “risk managers” first and foremost, and “scaling in” can wipe out your account if done incorrectly!!
Fortunately for you, we’ll show you how to SAFELY contribute to an open position.
The second disadvantage is that removing portions of your open position reduces your maximum possible earnings. Who would want to do that?
In markets as volatile and volatile as the foreign currency market, it may be advantageous to lower your risk and “take some off the table.”
