Having a role where you get to moderate a large number of traders have been an incredible journey for me so far. The most amazing aspect in serving this community is the fact that the level of motivation to learn more about what’s behind the ultimate success is outstanding.
And the knowledge that gets shared every day is another precious ace up our sleeve. And I can’t wait to see what this experience will bring us next.
Since I get a lot of great questions during the daily activity, I thought it was time to write some articles about it. Here I am going to briefly discuss about one of the most common questions I get. This is about scaling in and out of a trade.
This matter is very important for every trader and the first important thing to know is that there is no perfect recipe that is going to fit everybody and I totally agree with the fact that each individual should stick with what’s working for oneself.
With that said, here is my advice along with current habits about scaling in and out of a trade:
- Knowing what distance from the stop you have is going to help you defining how big of a position you’re willing to have. Keep exercising your math ability in order to be fast at calculating how much you’re willing to risk into a trade and to derive your sizing accordingly.
- Limiting the averaging down practice because this can quickly turn into bigger losses then what you’re willing to manage. Accepting the loss once the trade hasn’t gone the planned way is one of the greatest skill of a successful trader.
- Scaling in quickly once conditions meet the trading plan criteria. There is no rule about how many chunks you want to get, some traders have many but I personally go full-size at once or scaling in with two orders at most.
- Scaling out all in once for losing trades is what you want to go for. In fact, if you’ve decided to stop out, why would you keep part of the position open? The trade did not go as for plan and it’s time to get out. The sooner you figure this out, the better it will get for your trading career.
- Scaling out into chunks only for winning trades is a great habit and works well for me. After all, the trade is going exactly as you were expecting, why would you cash in the whole position at once? A good approach would be to get a portion of the profit of a trade at your first target and get the rest out only when a technical exit signal arises. You always want to hold a part of your trade for the bigger move because there is nothing more satisfying than enjoying the driver’s seat.
“One of the very nice things about investing in the stock market is that you learn about all different aspects of the economy. It’s your window into a very large world.” -Ron Chernow