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Chapter 36, Part I. Scaling of Position. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: Well, scaling has some advantages. First, if you add to your profitable position and the market continues to move in your favor – I suppose you like it, don’t you?

    Pipruit:
    You bet!

    Commander in Pips: Second, scaling could let you to lock in profits. As we discussed already – our task is to skew probability in our favor in any trade. So we have to make profit. With applying a trailing stop-loss order after breakeven, separating your total trading lot into some parts will allow you to achieve this goal. Applying scaling out in such a manner as this will allow you to finish some trades at breakeven or even with some profit, while you could finish them even with some loss without scaling. With other trades scaling will allow you to get more profit than if you applied just a single order at the beginning of the trade.

    And finally, is third big advantage – scaling will help you to get in. Has it ever happened to you, that your analysis was perfect except entry point – the market has not reached it for some pips and then starts move according to your analysis?



    Pipruit:
    Can a duck swim?

    Commander in Pips: I thought as much. Very often (if not to say always) we have 2-3 levels, where we can enter, and reaching of them will not cancel our context. Another way is when the entry area is not just a precise price but more of a range, especially on longer time frames. So, scaling in will let you wisely enter the trade – so if you even will not enter at the perfect area, you will take part in the trade and make necessary profits.

    Pipruit:
    I tell you what? Go ahead – I probably would like to hear more about scaling…

    Commander in Pips: Heh, maybe you want to hear something about the drawbacks of scaling first, don’t you?

    Pipruit:
    Hm, are there any of them?

    Commander in Pips: Yes. The first one is if you have scaled in and the market has reversed against you. If you’ve done it improperly it will increase your risk. That’s why we’ve said that money management is the first, while all other stuff is second. Applying scaling by gut feeling will lead to fiscal devastation. The second negative moment is not so crucial, but you can feel some upset if this will happen with you. This is scaling out after which the market continues to move in your favor, or even speeds up significantly after your partial exit. But this upset usually hits undisciplined traders, who trade without specification of targets. You will not feel any upset if this scaling out was planned by your trading plan. I tell you more – this even gives you positive feeling, because you will fulfill your trading plan at 100%.

    Pipruit:
    Ok, let’s see what scaling the beast is.
     
    Don Jerzzy likes this.
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