I would also like to add that for me, scaling in and out is very important. I will often start a position and wait for additional signs before adding more. Of course, your statistics, journal, and experience will help you fine tune this over time.
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I'll try to explain the logic of my statement.
I see it (and hope you can see it too) that scaling in/out is like trading two different strategies.
So you have two strategies on the same instrument and same time frame and same entry (scaling out) or same exits (scaling in). Obviously those two strategies are very correlated in their outcomes.
I explained in another tread that you can be better off by trading even a losing strategy together with a winning one, but its only true if the strategies are negatively correlated. Which is not the case here.
So first you need to test (get results) each strategy alone and see that each is a winning strategy.
The results that you can get are:
1. The scaling strategy is a winning strategy but when you separate it in two different strategies one is winning and one is losing. Will you trade the losing one? I won't.
2. Each strategy is a winning strategy (I seriously doubt it) but one gives you 5K each month and the second 500$. In this case why not trade 2 contracts on first one?
3. One month strategy 1 is better and another month strategy 2 is better. In this case its very good to trade the way you do (scaling). I never saw this happen.
If some one wants to read my threads, just do a search. Don't ask me to do it for you. I wrote 4 or 5 of them, so it should not be so difficult.
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FWIW, I scale out but very rarely scale in (trading individual financial instruments, i.e. not correlated pairs, which i would definitely scale in IF i was still using that technique).
My argument for scaling out is simply, I will usually enter in the direction of the trend on the longer time frame (be it 30, 60 or even daily charts). My entry is generally using the 1 and/or 5 minute chart with a target around the last strong support/resistance on those charts, so as long as it does not blow right through those targeted prices, I am looking to yard off some of the position there (usually 50%+, all depends on price action, time of day, etc.) but still hold onto something as a runner. After all, my position is with the prevailing trend.
Something I sometimes do when the trend is undefined is to exit completely on whatever price action i see as a potential stall/reversal signal and put a stop entry (half size) on the other side of that price just in case it breaks through for a continuation of the move.
If I enter as a countertrend fade, I will very rarely scale out.
Just a slightly different opinion
I see the OP is asking about scaling in mostly so as to that, i reckon it depends entirely on your strategy, reasons for entry, timeframes, etc. For my primary strategy now, I enter the trade with a stop in mind that says I misread the market and NOT a price that says, add more if it goes against me. However, I do know of folks that do add in such a way and are successful traders so...
Last edited by Myshkin; May 15th, 2011 at 02:47 AM.
Reason: Adding to actually address the question.
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