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Follow these two rules to preserve and grow capital

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Trading Experience: Intermediate
Platform: Bookmap and Jigsaw DOM
Broker/Data: Stage 5 Trading
Favorite Futures: ZN
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Posts: 433 since Jun 2015
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josh View Post
IMO the only really good reason to scale in is if the trader is throwing size that actually would have an observable market impact. Even Gary was not that big in ES.

The logic goes like this for me: if the zone that one wants to scale in over is X ticks wide, then certainly the target is at least 4X away or so, right? With a target that is sufficiently far away, whether one adds on the way down or on the way up won't make that much difference.

Either way, I think too many people use scaling in as an excuse to get sloppy and early with entries. Also, I think it makes it more difficult to add later, as it places the emphasis on "getting in early." Some of the absolute best trades are the ones where the market has already tipped its hand a bit, and an explosion is imminent; adding on the way up (or down) in these cases is the only way to get in with size, and they're the best trades to be in because you will often take no heat at all.

Josh, I love that you've brought this up. To preface this discussion, I mean no offense to Gary or Mike or Ed (Inletcap) or any of the other traders who successfully press their edge around zones of interest. In many ways, I can see the validity of this point. You can fade a zone, scalp a few ticks here and there while keeping a couple of contracts on, and see if it goes big time for you. If it doesn't, you made ticks scalping and lost a few ticks on the ultimate failure of the fade. Over time, it's probably a positive expectancy in a good trader's hands.

I used to do this in my own trading and I found that it just didn't work for me.

Like you mention, it allows novice traders to get sloppy with entries. Why bother picking your spot, waiting for your spot, and executing, when you can just "scale in" later? This is what I would always do:

1) Pick a spot. If the ES is 2010, I'll bid something like 2005 and tell myself that I'll scale in, because "It'll hold above 2000".

2) The market cracks right through my initial buy at 2005. I tell myself "Good, now that gives me an opportunity to scale in and put more size on". I buy another at 2003--because if it was a good buy at 2005, it's gotta be amazing at 2003!--and say "Now that I'm scaling in, I should give this a little room. I'll stop out at 1998.50".

3) The market trades 2000.50. I'm now down around 4 handles on much larger size than I should have on, and there's no sign of stopping. I buy again at 2000 because "This will be the spot where it finally works".

4) The ever-fickle ES snaps through lows, stops me out, and then trades back to 2005.

Here are the issues with what I was doing and what (I anticipate) I should have done.

1) I arbitrarily decided to buy too early. If I thought the market was going to 2000, why risk 5 handles on that? I should have considered buying lower. Furthermore, if I really saw buyers absorbing around 2005, I can crack off a quick scalp to see if it trades back to 2006 or 7, and then I exit that long. The ES in particular is whippy--hell, most of the products traded on this whole forum are thin and whippy--and if I can get four to six ticks out of a quick scalp, I'll take em. If 2005 is really the stopping point, the ES will likely revisit 2005.75 at the least, and I can get back in there. I don't really have stats on this. This is pretty much just based in the amount of time I've spent trading that product. It likes to revisit prices.

2) I would have no plan for scaling into the trade. I'd tell myself "I'll scale", but not know how much size where or when. And, fundamentally, I wouldn't understand the context behind whether or not the scale in is a valid trade. What if the ES plummeted 10 handles out of nowhere? What if the ES slowly grinded down throughout the day and was consistently rotating four to six ticks? I would have mistakenly traded the two situations in an identical fashion, which is the wrong approach to have.

3) ES at 2000 means that my long from 2005 is dead wrong. Unless I'm looking for 1950 or 2050 in the trade, 5 handles of heat pretty much means you should have been flat long ago. Perhaps 2000 is the stopping point! If it is, like Josh says, there are plenty of opportunities to buy 2000 and sell 2001.25 as the market consolidates. If 2000 is your level to buy, you could buy 2 at 2000, sell 1 at 2000.75, buy 2 at 2000.25, scratch 1 at 2000, buy 2 at 1999.75, and then see what happens. You're long 4 at 2000 and the market is 2000 bid. But, because you "campaigned the position", you have 2 ticks in the bank and now you have a position built. You have a little money. You have some size. But most importantly, you have knowledge! You know what kind of auction you're seeing at 2000, and you know very quickly whether you want to keep the long or scratch it out--or even flip and join the sellers pushing to break lower.

4) The ES snaps to 1998.50. You're long 4 at 2000, looking at 6 ticks of heat. If you scaled in the whole way down, buying 2005, 2003, 2000, you're now looking at 50 ticks of heat. It's a whole lot easier to breathe when you are only down $75 (and up $25 from the initial scalps) instead of $625.

Overall, I think the theme is knowing your market. Know what price you want to get involved at, know what price action you want to see at the level before the market gets there, and don't just throw limit orders into the book right when the market opens. See what happens at the price. See what the auction is like, see how money is moving the market, see if your thesis is correct, and then decide whether or not you want to scale into a position.

FWIW, I don't scale into positions. I don't really do position daytrading; I look for a few ticks here and there in the treasuries, instead of creating an overall idea for the day type and building a position throughout the day.

If you're a newbie, I think that scaling in will hurt your bottom line and your learning curve. If you're experienced, you don't need my advice!

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