Scaling into positions .. Smart or silly?

[spotdespot]

Just a further thought. If price moves against you when you are one or 2 scaled positions in then there is nothing to stop you moving your pendings to a better price if the read is still valid. If you have just placed one large trade with your full risk then you probably wouldn't want to add more.

I think the key to a lot of this is the mathematical edge Vs the psychological impact (as Mike mentioned really). In my opinion finding a trading strategy that gives you a mathematical edge is not that difficult - trading it becomes a psychological game and is where my issues lie so that's the area I need to mitigate the impact of as much as possible.

So I guess as I said previously much of this debate will come down to individual choice based on risk appetite but also other psychological factors including things such as account size etc. I think most people would have a different approach to trading a $100 account to trading a $100k account.

Cheers,
Dave.

[Pedigree]

A few months back, scaling into a trade was the last thing I would consider, even though, whenever a trade went against me, I thought little of opening new positions in the hope of a swing back in my favour! Looking back now, I see the absolute folly in this. The least one can do is at least balance the odds and try to tip it in one’s favour as much as is practicable; so that one stands to win a lot more than one could lose.

There are some 4 issues that should weigh in heavily in deciding to scale or not, and if so to what extent.

1. THE CONFIDENCE IN YOUR SYSTEM. I think the whole idea of scaling, in the first place, is really mainly based on this issue. It would be sheer madness and nothing short of an outright gamble to think of scaling into a trade if you don’t really know what you are doing. Looking back now. I see that the reason it could not ever occur to me previously to scale was that I knew I really didn’t have a system I could vouch for to any reasonable extent. So, for the question of scaling to even arise at all, you MUST have a system you are at least 80% or more sure of (backed up by a commensurate win rate). And this is why I will be forever grateful to Bob and Baluda for the amazing work they did creating the Info Page CSS. Read correctly, this indicator goes a long long way in fulfilling this first condition.

2. YOUR AVERAGE TIME IN TRADES. I have never been a great fan of sitting pending trades. Yes, they are very convenient and keep you out of a lot of lousy trades, but then, that is where point 1 above comes in to play. They also are probably the best you can do if you are not going to be around to monitor things, but personally I will not trade if I am not going to be around to monitor things, unless it be in circumstances where I have been able to lock profits in place. Pending trades get you in at some of the worst times in a trade and almost always guarantee that you are going to be caught in significant DD. You want to wait to enter a trade at the point where price will swing in your favour almost immediately so that your TP stands a good chance of being hit within a few hours or at the worst, by the close of the US session. It also makes for an early detection of a wrong trade decision or a sudden market change, as well as a smaller SL, if you want to use one. The second arm of an M or a W works wonders in this regard. With this kind of entry, the time in a trade is cut short so that it is a lot safer to scale in quickly and get out of the trade before price has the chance to reconsider its intentions. Often, some trades will be missed in the process (like the EURCAD trade today), but then so be it if it will make scaling any safer.

3. A MODERATE TP. Coupled with the average time in a trade is the issue of where the TP is located. Obviously, the larger the TP, the longer it will take to hit it. I will suggest a TP of never more than 60 pips (and open to a review) for a trade entered at about the London open, with scaling-in every 5 to 10 pips from a 10-pip profit point off of the scout trade. The degree of the scaling (the number of scaled trades) will naturally depend on account size.

4. MONITOR! MONITOR!! MONITOR!!! If you cannot be there to monitor at least the early part of a trade, then you might as well be trading with a robot! You have to be there to promptly nip in the bud any “accidents” or to take some profit and run if need be prior to the TP being hit.

With these issues taken care of, I cannot see myself ever going into a trade again without scaling in. The issue of how quickly to improve your bottom line (i.e. your lot sizes) will be invariably decided by your win rate in time. When you place 20 trades and win 19 of them, it quickly becomes clear what the possibilities are for you. I recall that Bob used to talk about a 10% account increase in a year or so. Now he gets this in less than a month and it’s obvious he can do even better.

[TraderDesk]

Personally I scale in my trades BUT I am even more aggressive scaling out. The amount of scaling in/out depends on the probability of a successful trade and ADR etc.... Each currency pair has it's own personality so I look at each individually... This works for me....

Believe me there are times when I am scaling out that I am cussing knowing that the market at some point will be in my favor but I will still scale out. Then I go for a drink and start anew...

[zentauro67]

I only scale to catch spikes and stop huntings in strong trends. I need a great confidence on the trend before scaling, because I don´t use SL.

The most powerfull insight about scaling I have read is in Jesse Livermore´s "How to trade in stocks". Before turtles, Livermore was already the king in that bussiness.

[Pedigree]

106 pips profit in a 30-pip range with next to no DD.

[mjws00]

Run the numbers at 6x size from Position 1. Much less drawdown. ~180 pips profit for the same relative position size.

The math is never in your favor to scale linear like this. If you were going to be right on this trade, then you should have just entered, and exited once, as that is optimal.

In any case adding to a winner is almost never a significant error, as there is always a point where it is only profit and not principal at risk.

Also if your system is such that you will know early via the single entry that the trade would fail, it might save you putting more $ at risk. Especially if you have stats to back up that once your trades start to run, they are likely to stay profitable. For me 1 additional entry against is +EV. 2 is often an error. Adding too aggressively once in profit often causes me to stop out BE, as I have a very difficult time letting the larger position turn a winner into a loser.

You can do some really fun things by skewing the sizes as well. It really isn't about finding the optimal trade, but finding a way to control the risk and mental errors. Try 1x, 5x, 4x, 3x, 2x, 1x. You end up with a good average cost without crushing BE, and you have that small feeler out if you will know early that you are wrong. Works for some.

Mike

[MurphyMan]

I have been scaling almost every trade for a month or so and it has been working pretty well.

I usually scale 5 trades at a time, with a 15 pip spread, sometimes, I'll move it to 10 pips. By default, the TP & stops set are way in the distance. As soon as I place the scaled trades, I use the Take Profits script to set the TP to to the next pivot, which is usually with a few pips of the highest scaled-in. I usually don't touch the stops until I have some movement.

A few hours later, the next time I review the pendings, I usually delete all the pendings and re-decide if I like the set-ups as much. It helps me to look at a screen without all the clutter of those pendings.

I'll attach the scripts I use.

[Jemook]

Just wanted to finish off with my findings.. Since I stopped scaling into positions and started risking 1% per trade my DD is much smaller, much easier to manage trades and I've been way more profitable.

So 10.4/5 and scaling as I outlined in my first post is not for me.

J

[Radar]

I'm a tight sod, and only open trades for 0.01 lots, but I do like scaling in on big movers, when I can find them. I always aim to scale in when my jumping stop has jumped twice, and my scale-in trades have the same size stoploss and jumping stop as the scout trade, so I'm only risking half of my locked-in profit. If the move is big enough, I can get to the point where I'm doubling my lotsize every 3 or 4 jumps, but still only risking half of my locked-in profits.

The problem for me is recognizing the big movers, then working out a stoploss that's big enough to survive the retraces, yet small enough to be able to get 6 or 7 scale-in trades in place.

Have fun!

Radar =8^)

[TraderDesk]

Just wanted to finish off with my findings.. Since I stopped scaling into positions and started risking 1% per trade my DD is much smaller, much easier to manage trades and I've been way more profitable.

So 10.4/5 and scaling as I outlined in my first post is not for me.

J

Jeremy,

Scaling will add to your DD as you are increasing your leverage which is part of the DD equation. Trading with scaling correctly will add to your profits dramatically but done incorrectly will add to your DD dramatically as well.

What is the correct way to scale? Every trader has their own methods so I will say that my method is to see a strong trend developing and add on the stochastic valley/peak to take full advantage of price movement.

Works for me more times than not so I use it in my box of tools quite a bit...