Part I. Scaling of Position
Commander in Pips: Since we’ve discussed the basic rules of money management and leverage application  you can start to trade with them and I have sufficient confidence that you will not blow out your trading account. We know how to estimate the value of your position, its link with risk management – now let’s add some flexibility to this. Probably, if you just have started to trade, you may stand without any scaling of your positions, but a bit later you may try to apply it.
Pipruit: And what is scaling of a position?
Initially it is better to foresee scaling and write it down in your trading plan at some price level. This will let you to do this reasonably and calculate risks ahead of scaling, so you will not need to think about risk in the process of trading. This is just safer.
Pipruit: And why do we need it? I feel quite comfortable with my initial position…
Pipruit: Ok, ok – what is so fascinating about scaling?
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!
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?
Pipruit: I tell you what? Go ahead – I probably would like to hear more about scaling…
Pipruit: Hm, are there any of them?
Pipruit: Ok, let’s see what scaling the beast is.
Scaling out
Commander in Pips: Ok, the first way is a pleasant one – scaling out. I call it “pleasant” since it includes profit taking. About the “scaling in” procedure we will talk a bit later. Actually we’ve spoken about this way in details in harmonic patterns trading section. Also this approach clearly described in L. Jouflas and L. Pesavento book – “Trade what you see”. So, if you will need more clarification – be my guest. Although they apply such a way of scaling to harmonic pattern – it could be applied to any approach. Harmonic pattern is just on that trigger your in. If you apply another way to enter – this is no problem, you may apply the same “scaling out” procedure. So, let’s see how it works.
The statistical foundation for scaling out is to increase the probability of getting profit and stay with the profit/no loss situation with as much probability as possible. Initially at the stage of your trading plan creation you have to assume partial scaling out of your position. There are two goals that assume scaling out:
1. Move your trade to breakeven reasonably as soon as possible;
2. As first goal been achieved – get profit.
So, in a way of example that we will show, you gradually move the odds into your favor. Our task in any trade is to not get as much profit as we can anyway (although it looks attractive), but to get as much probability to get profit or stay at breakeven as we can. On first view it might be seen as curious, but trading is a huge number of trades. If you follow the maximum profit in any trade and do not move probability in your favor – you probably will catch some of those big trades, but will lose in many others.
When your probability to success becomes much greater in every trade but profit itself becomes a bit smaller – then you will get a better overall result. I will not even talk about the psychological component. The simple example could be as follows: What is better to get $1500 profit and then take a loss $250 in 5 trades in a row later or to get $150$ profit in 4 trades in a row and 1 loss at $100? Is the result the same? I think the choice is obvious. Ok, that’s enough blahblahblah – let’s pass directly to an example. That is our butterfly “sell” that we’ve used already but for a bit different purposes.
Now let’s discuss a scaling out example.
Chart #1  EUR/USD 60min Butterfly “Sell” trading
Let’s suppose your trading plan assumes of trading this pattern. You do not know initially will it be 1.27 Butterfly or 1.618, so you’ve decided to enter from 1.27 area. According to trading rules, your stop should be at “invalidation point” that is 1.618 level + hourly harmonic number 20 pips, that couldn’t be passed just occasionally. Let’s suppose that your account assets are 10,000 USD and your money management rule is 1.0% in any trade. What lot should you enter from 1.3543 level and stop at 1.3590?
Pipruit: Well, 1.5%*10,000 = $150. Then $150/(1.35901.3543) ~30,000USD or 0.3 standard lot.
Now we see, how price drops to 1.3496  50% support of whole butterfly move – from 1.3443 to 1.3550 high. You do not know what will happen next. You see that move down was nice and there are a lot of chances that it will continue, but you do not know for sure. At the same time, the market has passed 50 pips in your favor and shows some hint on retracement at 50% support.
 You close 50% of your position. Profit 15,000*(1.35431.3496) = $70.5
 You move the stop at second leg at breakeven – 1.3543.
It always makes sense to take some chips off the table in such manner. Just look what we’ve just done – you will get some profit and your position now is riskless. You can just lie back and watch the movie…
Trading is continuing…
Later you see that market has hit 0.786 support. All later action will depend on trader’s experience. Newbie trader probably will close rest of position and get:
 15,000*(1.35431.3466) = $115.5 profit. Total profit is 115.5+70.5 = $186.
Another way, if your broker allows you to do this – you may close 25 % or, say 0.08 lot and hold the other until the ultimate target at 1.3377.
In fact this will not change the overall picture. Probably an experienced trader will get a bit more profit, while a newbie a bit less, but profit is profit. Pay attention to how probability was skewed by our action in our favor right after reaching of the nearest target at 1.3496. Here you shift your trade to 100% profitable one, since you already have earned 70 bucks. Second, you have turned the rest of it into a riskless position. That is scaling out application.
Pipruit: Could I apply different stop management? For instance, could I not to take any profit at 50%, but just move to breakeven, since the market has passed harmonic number (40 pips) in my favor that should not been happened just occasionally?
I see that you do not feel confident enough with that issue – taking a part of profit. Here is another example for you on the weekly time frame:
Chart #2  EUR/USD Weekly
Pipruit: Pitiful perspective? This is an absolute nightmare!
Pipruit: Ok, ok. I see the difference with smaller numbers too… What’s about scaling in?
Comments
R
rajesh bhujbal
9 years ago,
Registered user
Hi COMMANDER ,
I know that you dont have your legs...!!!!!
you must have lost them in some battle .....!!!
i just looked at your photograph....
(LOOK AT SECOND ANIMATED IMAGE ON THIS PAGE, COMMANDER DOESNT HAVE ANY LEGS...)
;);););););););););););););););););););););););););););););););););););););););););););););););););););););););););););)
I know that you dont have your legs...!!!!!
you must have lost them in some battle .....!!!
i just looked at your photograph....
(LOOK AT SECOND ANIMATED IMAGE ON THIS PAGE, COMMANDER DOESNT HAVE ANY LEGS...)
;);););););););););););););););););););););););););););););););););););););););););););););););););););););););););););)
Table of Contents
 Introduction
 FOREX  What is it ?
 Why FOREX?
 The structure of the FOREX market
 Trading sessions
 Where does the money come from in FOREX?
 Different types of market analysis
 Chart types
 Support and Resistance

Candlesticks – what are they?
 Part I. Candlesticks – what are they?
 Part II. How to interpret different candlesticks?
 Part III. Simple but fundamental and important patterns
 Part IV. Single Candlestick Patterns
 Part V. Double Deuce – dual candlestick patterns
 Part VI. Triple candlestick patterns
 Part VII  Summary: Japanese Candlesticks and Patterns Sheet

Mysterious Fibonacci
 Part I. Mysterious Fibonacci
 Part II. Fibonacci Retracement
 Part III. Advanced talks on Fibonacci Retracement
 Part IV. Sometimes Mr. Fibonacci could fail...really
 Part V. Combination of Fibonacci levels with other lines
 Part VI. Combination of Fibonacci levels with candle patterns
 Part VII. Fibonacci Extensions
 Part VIII. Advanced view on Fibonacci Extensions
 Part IX. Using Fibonacci for placing orders
 Part X. Fibonacci Summary

Introduction to Moving Averages
 Part I. Introduction to Moving Averages
 Part II. Simple Moving Average
 Part III. Exponential Moving Average
 Part IV. Which one is better – EMA or SMA?
 Part V. Using Moving Averages. Displaced MA
 Part VI. Trading moving averages crossover
 Part VII. Dynamic support and resistance
 Part VIII. Summary of Moving Averages

Bollinger Bands
 Part I. Bollinger Bands
 Part II. Moving Average Convergence Divergence  MACD
 Part III. Parabolic SAR  Stop And Reversal
 Part IV. Stochastic
 Part V. Relative Strength Index
 Part VI. Detrended Oscillator and Momentum Indicator
 Part VII. Average Directional Move Index – ADX
 Part VIII. Indicators: Tightening All Together
 Leading and Lagging Indicators
 Basic chart patterns
 Pivot points – description and calculation
 Elliot Wave Theory
 Intro to Harmonic Patterns
 Divergence Intro
 Harmonic Approach to Recognizing a Trend Day
 Intro to Breakouts and Fakeouts
 Again about Fundamental Analysis
 Cross Pair – What the Beast is That?
 Multiple Time Frame Intro
 Market Sentiment and COT report
 Dealing with the News
 Let's Start with Carry
 Let’s Meet with Dollar Index
 Intermarket Analysis  Commodities
 Trading Plan Framework – Common Thoughts
 A Bit More About Personality
 Mechanical Trading System Intro
 Tracking Your Performance
 Risk Management Framework
 A Bit More About Leverage
 Why Do We Need StopLoss Orders?
 Scaling of Position
 Intramarket Correlations
 Some Talk About Brokers
 Forex Scam  Money Managers
 Graduation!