Scaling in trading approach

Scaling in trading approach

Neither traders nor high-profile analysts can say for sure which way the prices will go. If traders knew, they would commit all their funds at the top or the bottom of the technical chart in order not to lose a chance of snatching great sum of money and did make big profits from their lots. Unfortunately, we are not prophets who possess psychic powers, we are humans, so, it’s beyond our abilities to make such predictions. What we do have, though, is our rational mind and gut feeling that could give us some clues on how the quotes will move further.

Imagine you have a really great idea on how to trade a certain currency pair, but you don’t want to risk the whole sum of money you possess because you’re not a hundred percent sure in your guess. So, in this situation, you may apply a more cautious way of trading called “scaling in”. It suggests you smooth your risks by entering the market in pieces instead of putting the entire position on just in one entry. So, you simply should take an early, partial or quarter position based on your assumptions of a further price move and wait to see how your assumption play out. If you are better off after the first try, you can continue to place your bets putting aside some money for the next trading sessions.

To use this trading approach accurately you should plan out your entries, divide the money you possess into shares and assign them to several bets. Don’t go overboard if you got lots of money after the first try. Markets are vicious, they can play a low-down trick with you and leave you without pants. “Scaling in” approach is designed for rational, prudent and tactical traders, who trade not just for pleasure, but also for making money from their bets.

Example: in the situation presented on the picture, you divide your bet into 4 pieces. You start with the 0.8900 point, and if the trend continues, you open the next long position at the upper level (at 0.8950) with the same bet. Then, you continue to place new orders similar to your first ones (at 0.9000, at 0.9050) until the end of the trend. 

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