How to Scale In to Positions
This article will teach traders to build positions through multiple entries as opposed to putting on the entire position right up front. Below we will offer a mannerism in which traders can look to increase their position size ONLY if the trade is moving in their favor.
While at dinner recently with a group of analysts and traders, the topic of scaling in to positions came up, and a vigorous debate ensued. After 30 minutes of lively conversation, something became very clear: Even amongst professionals, scaling in to a trade is a hotly debated topic.
Risk management is a huge part of trading; and since one of the few factors in a trader’s control is the size of the lot that they are trading, the topic of ‘scaling in’ positions certainly warrants attention.
This article will explain what scaling in is, how to do it, and in which circumstances traders may want to look to ‘scale in’ to positions.
What is scaling in?
Scaling in is the process of entering a trade in pieces as opposed to putting the entire position on in one entry.
A trader that is looking to scale into a trade might break their total position size in to quarters, halves, or any other division that they feel might let them take a more calculated approach to putting on a trade.
Let’s say, for instance, that a trader was looking to take EURUSD up to 1.3300, but was afraid of a near-term movement against them. As opposed to putting on the entire trade right up front, the trader can look to ‘scale in’ to the position. The picture below will illustrate further:
Scaling in every 100 pips
If the trader wants their total position size to be 100k, they can choose to open 25k every 100 pips that EURUSD moves up. So, our trader can open 20k to start the position when price is at 1.2900, and once moving up to 1.3000 our trader can put on another 25k. This has the added benefit of allowing the gains in the first part of the position to assist in financing the second.
After price moves up to 1.3200, the trader takes on another 25k, and again at 1.3200. Once price hits 1.3300, the trader can close the position at a strong profit.
Why Scale In?
In the above example, let’s assume our traders stop loss was at 1.2800 when they opened their initial EURUSD position at 1.2900. But instead of our trader scaling in, let’s assume they opened the full lot at the outset of the trade, and this time, unfortunately - the trade didn’t work for them as EURUSD ran directly to their stop at 1.2900. This means our trader takes a loss of $1,000 (100 pips X $10 per pip (100k lot)).
If our trader instead looked to enter using a scale-in approach the trader would have a much more moderate loss of $250 (100 pips X $2.50 per pip (25k lot)).
And the trader using a scale-in approach could have used trade management to assist in the risk management of the trade if the position moves in their favor.
Let’s say that EURUSD moved up to 1.3000 shortly after our trader entered, but then reversed moving down to 1.2800. Once again, if our trader had opened the entire position up front they are faced with a $1,000 loss. But to the trader that had scaled in, adding a second part of the lot at 1.3000 - the loss would, once again, be much smaller.
If the trader’s stop remained at 1.2900 while scaling in, the total loss on the position would be $600 ($200 for the first 20k scale, and $400 for the second (200 pip loss X $2 per pip)).
But why would the trader be required to leave their stop at 1.2900 after the pair had moved in their favor 100 pips on the initial part of the lot? Many traders will use this type of movement as an opportunity to move their stop up to break-even, in an effort to remove their initial risk on the trade.
So, as EURUSD moved up to 1.3000, the trader can open the second part of the lot, and also adjust the stop on the first part of the lot to 1.3000 from 1.2900. That way, if price reverses against the trader, they can get stopped out at break-even on the first part of the lot, taking a loss on only the second part of the position.
This process can be continually instituted on all 4 parts of the scale-in approach, so that by the time the trader enters their final 25k of the position at 1.3200, stops have been moved to break-even on the previous 3 parts of the position, and the trader only carries, at maximum - $200 of risk on the position (assuming a 100 pip stop on any of the 4 legs of the position at 25k per leg).
When to scale in?
Traders often prefer to scale in when they are looking for a large move in a currency pair, but want to use a more risk-sensitive approach than putting on the entire lot right up front. The downside to scaling in is that you won’t get the entire move for the entire position.
Whereas in our above example, the trader would be able to look for 500 pips at $10 per pip, a trader scaling in would only be looking for 500 pips on the first part of the position, with the second part seeking 400 pips, the 3rd looking for 300 pips, the 4th seeking 200 pips, and the fifth and final part of the lot looking for 100 pips. But keep in mind, scaling in also allowed the trader to take on far less risk during the trade than had the entire position been initiated right up front.
Today I will discuss some more issues with you. After the first episode, I have received good reviews from you. I have received many people in my group who want to take the secret system from me now, and their trade skills and deposit amount is also good. I told them to wait because I also got some traders who do not have the skills but they want to take the secret system. If they can give me enough proof of their skill then they and the system will be given to all other traders. And one thing I would say is that our system will require at least $ 100 in deposits because then the risk of losing your trade will be greatly reduced if you do not understand anything more about me. If the deposit is less, there will be a little risk. Those who missed the previous tune can fall from here. What is the reason for the tune? Everyone has told me that they have succeeded in the demo but Real has put them in their way. How can I get rid of it?Many have told me that they are making good profits in demos but are losing a lot in real. There are also traders who have talked to me about those who came to Neil from $ 500 but they were very successful in the demo. I can catch their problem and tell everyone else before starting the real trade or before taking my secret system. Practice. How to practice properly with demo? Demo trade options are not available in Forex. We all know it. After knowing, we succeeded in trading in the demo, but when we went to trade real, we lost everything. Now let me tell you - you guys can do a demo with at least $ 1,000 or $ 5,000 or more. But start real trade with $ 20- $ 100. This is your biggest mistake. You will trade in a real account with 100 or less or a little more. Now if you open 5-6 trades together in demo trade and make a profit. Because your deposit in demo is $ 1000 or more egg leverage and more. But when youDo real trade with your $ 100 then your leverage will be less than because of low deposit no broker will allow you to open so many trades at once. Many may have understood. Now how do I trade in the demo? Now if you want to trade with my system or alone then you need to deposit at least $ 60-৳ 100. If your deposit in Forex is 60 then you will trade with the same balance in the demo. Before trading in real, you will take the balance tie in the demo with the balance that you planned to trade real. Suppose you are actually trading real. The way you trade in this low balance, you will trade in the same way in the demo. And if you see that there is a loss in your demo, then you will think that your reality will also be lost. And if it is profitable, then real will also be profitable. I have made profits in two demos in more balances and fewer balances and I have also made profits in real ones. I am used to trading in my system so I don't have any problem. But those who are new often lose for this reason. You need to be successful in the demo before you can make the deposit and then try it in real. Hope everybody understands.
The inter-bank market accounts for a huge volume of currency trading. Banks of different sizes trade currencies with each other through electronic networks here. In addition, they carry out forex transactions on behalf of their customers. Although bank traders constitute 5% of the total number of forex traders, they account for 92% of all forex volumes. They do participate in speculative trades from their own trading desks, but the major volume of their trades is for market making. Therefore, banks are primarily market makers. They move the markets to and from demand and supply areas. Institutional traders like them move significant volumes of money, so large that their positions cannot be completed without an effect on currency prices. Why Should Traders Learn Bank Trading Strategies? The forex bank trading system comprises of searching for areas of liquidity in the market, where a price reversal can take place. If traders are able to ascertain these areas of supply and demand, and the directions of trade, then profitable decisions can be made. There are a large number of expert traders who believe that rather than attempting to fit different strategies in this huge market, they would rather learn the way banks trade. After all, banks do control the forex market. These traders believe that following bank trading strategies can increase their chances of success. How Do Banks Trade Forex? All the usual rules of trading apply to banks as well. For every transaction to buy there has to be someone interested in selling and vice versa. For banks, these positions are huge, which means that they have to wait for large counterparty offers. In order to do that, they have to keep track of huge buying or selling pressures accumulating over time. 1. Accumulation Periods/Range-Bound Conditions These are extended periods of price consolidation or what we call range-bound markets. A tight range-bound market allows banks to be discrete about their positions. It also allows them better than average trade opportunities. A long position can be accumulated to be shorted later at escalating prices. If traders are able to identify these points of accumulation, they can also judge where the market will head in future more accurately. Consolidation phases shouldn’t be discarded as useless. There are many strategies to trade in range-bound markets. 2. Manipulation by Banks Have you ever entered a position thinking that the market will reverse for an uptrend, only to find yourself stuck in a falling market? False breakouts are often created as a result of a significant push by major banks to create their own markets. Unfortunately, most retail traders follow reactive strategies in retaliation to market movements. Your forex system generates trade signals after price movements take place. This is “reactive,” rather than “predictive.” Banks could induce short-term manipulation by creating false pushes in directions opposite to the trend. If we observe carefully, we will be able to find the positions they accumulate over time, and not fall into the trap of false buying and selling pressures. This is essentially what supply and demand traders work on. They try to determine the actual direction price will take, which will later qualify as the market trend. Too Much Technical Analysis Unlike retail traders, bank traders do not rely on too many technical indicators. Their charts are very clean, and they focus on key levels. Experts say that indicators were mainly created to predict where the markets are going. Here again, there’s a stress on predictive actions to the market, as opposed to reactive. If it’s assumed that bank traders are the market, then it’s important to follow their route to make informed decisions. Understanding their technical analysis will help traders to trade with the market and not against it. So, remove the endless sea of indicator tools from the charts that cloud the actual price-action. Bank traders arrive at decisions based on economic fundamentals. 1. Economic Data Disjointed currency directions are a result of political instabilities and countering central bank announcements. In the absence of any political turmoil, central bank policies move in tandem with economic data releases. These are the times when bankers are on the lookout for emerging trends. They have all the right key tools, such as Bloomberg or Reuter’s market terminal, to gain access to real-time financial market developments. For this, a sound understanding of fundamentals is necessary. This means having knowledge of how various releases affect the market. 2. Having a Sense of Trend and Momentum Couple of items can help in assessing trend and momentum. For example, candlesticks are good for judging momentum and trend channels, along with medium to long-term EMA, which is great for looking at price trends. The market is full of patterns, and only the reliable and consistent ones should be incorporated. Bank traders study charts minutely, including monitoring them on daily and weekly timeframes. Charts not only provide specific entry levels, but also help in assessing overall trends and the current momentum. 3. Support and Resistance Levels Combine trend/momentum and support/resistance levels and you will always find interesting opportunities to trade. It is through these levels that traders can find breakout and price bounce points. Some traders opt for the discretionary way, by waiting for high probability set-ups; others take small but consistent set-ups with smaller edges. 4. Capital Management System The market is the same for everyone, and even bankers lose money in trades at times. But, they also have stringent risk-management measures that take care of trade plans, risk-reward ratios and capital controls. For retail traders, the risks are higher due to the presence of margins. Therefore, adequate stop-loss and take-profit orders have to be integrated in the trading plan. Commercial and investment banks can be considered as the foundation of the forex markets; they are the liquidity providers. Almost every player deals with them, to participate here. They provide real-time forex price quotes to brokers. For this reason, every trader should try to understand the dynamics of inter-bank trading to develop effective strategies. Disclaimer If you liked this educational article please consult our Risk Disclosure Notice before starting to trade. Trading leveraged products involves a high level of risk. You may lose more than invested capital. 71% of retail investor accounts lose money when trading CFDs with Blackwell Global Investments (UK) Limited.
Traders love to micro-manage their entry decisions, down to the last few pennies. Of course, this is important, but what can make or break the trade is choosing the right exit point. There are countless stories of traders holding on to trades in the hope of making just a few more bucks, only to find that the market has moved against them, costing them much more than they could have profited. In fact, recent studies have revealed that the performance of entry strategies could be significantly enhanced with a well-informed exit decision. So, how can you establish a good exit strategy? The first step is to decide the time period of the trade, such as: - Day Trading: As the name suggests, here you enter and exit trades on the same day, without holding any overnight positions. - Swing Trading: This usually entails holding positions for hours or even days to benefit from short-term price fluctuations. - Position Trading: This is a long-term strategy that involves using technical and fundamental analysis on weekly or even monthly charts to make trading decisions. Here, positions can be held for months or even years. - Investment Timing: This involves holding a position from a few weeks to months. Again, this is a long-term strategy. There are only two ways you can exit a trade, by either making a profit or by incurring a loss. Take profit and stop-losses are terms used for the type of exit being made. A trader may consider the following factors before developing an exit strategy: 1. The time you are willing to spend in the trade 2. The risk appetite for that particular trade 3. The profit point or a point where you would like to exit the trade. Here’s a look at various things to consider while developing an exit strategy. Change the Way You Think About Trade Exits Traders usually think about rewards and profit levels when deciding on exiting a trade. However, many might miss out on considering a stop-loss level or a pre-calculated level beyond which you will incur losses. Very often, trading decisions are made based only on the perfect entry level, without much thought given to when to get out of the trade. What this does is tempt the trader to hang on to a position in hopes of further profits. It is important to manage stop-losses and risks associated with trading. This will make the difference between your long-term success or your account getting wiped out in a single trade. It is best to live and fight another day by taking on small losses than waiting to hit the jackpot in a single trade. Accept You are Not Going to Make Profits in All Trades Whatever fairytale stories have been spread about trading, the reality is that even the most successful traders do incur losses from time to time. How you manage the loss-making trade will determine your future in the market. These can be great learning experiences, helping you hone your strategy. This is why it is always recommended to keep a trading journal and go back to analysing past trades. Be Flexible, Not Emotional with Your Exits As a trader, your trading decisions should be purely based on logic and analysis, rather than emotions. This will help you adapt to changing market scenarios with ease. Some things that can help you remain flexible with your exit strategy are: 1. Profit Targets: Traders think that the market is moving in their favour and end up pushing their initial targets further away. This leads to losses or smaller profit than expected. Before moving your targets and exiting manually, you should consider whether your decision is based on emotions or logic. Moving a target away from your original plan when the market moves in your favour is mostly a decision made out of greed. A trader should play out the pre-planned strategy and then use the learnings to prepare for the next trade. This develops a disciplined trading habit. 2. Stop-Losses: You may consider being a bit rigid with stop –losses. A trader must exit a position if the market moves against them. This is why stop-losses are put in place. The position will automatically be terminated when the market falls to a pre-decided price level. Exiting a trade manually before the stop-loss target may also eliminate chances of making profits if the market witnesses a turnaround and starts going in your favour. This will impact your long-term trading strategy. A stop-loss must be only moved to reduce your loss on the trade. Sometimes a Smaller Profit is Beneficial It is also beneficial to exit a trade with a smaller profit if the market action is telling you to do so. Even if you haven’t reached your risk-reward ratio but all signals point towards prices moving against you, or the market is stagnant for a long time, you may consider exiting a trade with smaller than expected profits, rather than wait for a turnaround. Set Your Targets and Wait Once you enter a trade, don’t interfere with it, except in exceptional cases, such as a major economic or political event. So, while it is important to stick to your strategy, 100% rigidity could also prove costly. It is a fine balance that needs to be maintained. The best way to do so is through remaining in touch with market news. There are several factors to be considered before exiting a trade. A strategy may reduce risks and increase the potential for profit making, even when the market movement seems unfavourable. There is no best strategy or method to exit a trade. One method will work well for some trades and lead to loss on others. Research has proven that traders end up making more losses when they fail to stick to their trading strategy. Risk is an inherent part of trading. Traders need to monitor market movements and put in appropriate risk management strategies, of which an exit strategy is an important part. The timing of your exit can decide your long-term success in the market. Disclaimer If you liked this educational article please consult our Risk Disclosure Notice before starting to trade. Trading leveraged products involves a high level of risk. You may lose more than invested capital.