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All in all out vs. scaling in and out
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View Poll Results: All in all out or scale in and out?
All in, all out 79 33.05%
All in, scale out 103 43.10%
Scale in, scale out 57 23.85%
Voters: 239. You may not vote on this poll

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All in all out vs. scaling in and out

  #61 (permalink)
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  #62 (permalink)
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emini_Holy_Grail View Post
Thks Massive

while you scale in, I guess we add (scale in) 2nd and 3rd pos, as price "retrace" and gives better entry price than the 1st entry price? say, if you enter 1st CL at 93.20 and if price retrace to 93.10, adding 2nd contract so avg entry becomes 93.15, better entry for both. is this right?

I see someone say they add 2nd pos after 1st pos gains 5 ticks, but that makes the 2nd, entered at 5 ticks later though, increasing the risk if price reverse and hit stop loss

I think the first example is more averaging down while the second example is scaling in.

Scaling in is when price action confirms a move and you add to the position
Averaging down is when the price goes against you but you are 'sure' it will reverse so you add to the position.

I never really understood the mental process of averaging down. I mean, I understand why people do it, but logically, if you expect the market to go down and will purchase more when it does, why not wait for it to go down before entering? That way your buying power will be optimal when you enter the market instead of partially depleted.

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  #63 (permalink)
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Bermudan Option View Post
I think the first example is more averaging down while the second example is scaling in.

Scaling in is when price action confirms a move and you add to the position
Averaging down is when the price goes against you but you are 'sure' it will reverse so you add to the position.

I never really understood the mental process of averaging down. I mean, I understand why people do it, but logically, if you expect the market to go down and will purchase more when it does, why not wait for it to go down before entering? That way your buying power will be optimal when you enter the market instead of partially depleted.

I agree. Don't buy into a market that's being marked down.

I sometimes fade trends but only after I have seen key signs of weakness in an uptrend
or strength in a downtrend. I never average down or up in either case.

Sometimes I catch a top/bottom and sometimes I only get a point or two.
My initial setup is never more than 1:2. I've grabbed a few 1:10 when it's ran though.
Low risk high reward fade IMO.

I'm no expert though and always learning. I've made a lot of mistakes over the years!

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  #64 (permalink)
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Bermudan Option View Post
I think the first example is more averaging down while the second example is scaling in.

Scaling in is when price action confirms a move and you add to the position
Averaging down is when the price goes against you but you are 'sure' it will reverse so you add to the position.

I never really understood the mental process of averaging down. I mean, I understand why people do it, but logically, if you expect the market to go down and will purchase more when it does, why not wait for it to go down before entering? That way your buying power will be optimal when you enter the market instead of partially depleted.

I think averaging down is a losing game if you are day trading. But if you are long term trading, it can be an excellent way to build a large position, while improving your average entry price.

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  #65 (permalink)
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monpere View Post
I think averaging down is a losing game if you are day trading. But if you are long term trading, it can be an excellent way to build a large position, while improving your average entry price.

I agree in day trading that is one of fastest ways to burn up your account.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #66 (permalink)
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monpere View Post
I think averaging down is a losing game if you are day trading. But if you are long term trading, it can be an excellent way to build a large position, while improving your average entry price.

Hmm. I've always wondered about this.... A 1% stop loss on total portfolio value vs a averaging down in preparation for a bottom:

Let's say we have a starting amount $100,000 and the average down-er somehow cannot guess the bottom of the stock but he can guess the amount of tries needed to anticipate the bottom. He makes four purchases @ $25,000 each and then can ride the bullish elevator back up. The trader who constantly enters and exits the market is putting all his chips on the table but exiting after a 1% loss. Price went from 50 to 35 in 5pt increments.



Averaging down:
First purchase: 500 shares. Total of 500 shares @ 50
Second purchase: 555 shares. Total of 1055 shares @ 47.39
Third purchase: 625 shares. Total of 1680 shares @ 44.6
Final purchase at successful bottom = 714 shares @ 41.77
Total of 2394 shares invested at $35 with a cost basis of 41.77



Stopped out and re-entering:

First purchase: 100,000. Stopped out at 1% loss
Second purchase: 98,010 stopped out at 1% loss
Third purchase: 97,029 stopped out at 1% loss
Fourth (Successful) purchase: $97,029 available for a purchase
Total of 2772 shares purchased at $35 with a cost basis of $35

Of course, this is just a crude example that doesn't take into effect advantages of holding long term such as possible dividends and long term capital gains taxation, but off the top of my head, it doesn't seem like a viable strategy.

Sticking to getting stopped out allows you to have a lower cost basis and a larger buying power when it really matters.

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  #67 (permalink)
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Currently I trade all in - scale out. However for a while now i've liked the idea of scaling in purely because you have the least risk exposure at the start of the trade. I've since started looking at various scenarios and scaling in techniques but so far have been unable to find anything that has a mathematically edge over All In. Yet I can't shake the idea that scaling in is ultimately the best option.

I've heard countless times that the pro's add size as a position moves in their favor. That when the amateurs are exiting, they're adding more, etc...

But i've gone through several different scenarios of scaling in vs all in approaches and have been unable to find a scale in approach that is more profitable. In each scenario I go through what would happen if:
-All targets are reached
-Full stop out
- One target is reached then stopped out

The possible trade management approaches are countless. Personally it makes sense to me to enter one lot initially and then based on how the market structure develops, add more. But again, I have been unable to find a way to do this so far that makes sense.

I know @FuturesTrader71 talks about campaigning around a position. So this is essentially a scale in - scale out approach that he has developed.

In the webinar on futures.io (formerly BMT) done by @Private Banker he talks about trading a core and satellite position. Again, this is a form of scaling in that he has developed.

I may be mistaken, but im fairly certain i've seen @Big Mike mention that he scales in.

So that's 3 very good traders (in my opinion) who all use variations of scaling in. This is an old thread so I thought I would give it a bump in the hopes that this topic can be discussed further.

Any scale-in'ers out there? Why do you scale in? Is it purely mathematical or more psychological?
Is the scale in mechanical or based on market structure?
Have you run the numbers on your trading method with various entry styles (scale in vs all in)?
etc...

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  #68 (permalink)
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DarkPoolTrading View Post
Currently I trade all in - scale out. However for a while now i've liked the idea of scaling in purely because you have the least risk exposure at the start of the trade. I've since started looking at various scenarios and scaling in techniques but so far have been unable to find anything that has a mathematically edge over All In. Yet I can't shake the idea that scaling in is ultimately the best option.

I've heard countless times that the pro's add size as a position moves in their favor. That when the amateurs are exiting, they're adding more, etc...

But i've gone through several different scenarios of scaling in vs all in approaches and have been unable to find a scale in approach that is more profitable. In each scenario I go through what would happen if:
-All targets are reached
-Full stop out
- One target is reached then stopped out

The possible trade management approaches are countless. Personally it makes sense to me to enter one lot initially and then based on how the market structure develops, add more. But again, I have been unable to find a way to do this so far that makes sense.

I know @FuturesTrader71 talks about campaigning around a position. So this is essentially a scale in - scale out approach that he has developed.

In the webinar on futures.io (formerly BMT) done by @Private Banker he talks about trading a core and satellite position. Again, this is a form of scaling in that he has developed.

I may be mistaken, but im fairly certain i've seen @Big Mike mention that he scales in.

So that's 3 very good traders (in my opinion) who all use variations of scaling in. This is an old thread so I thought I would give it a bump in the hopes that this topic can be discussed further.

Any scale-in'ers out there? Why do you scale in? Is it purely mathematical or more psychological?
Is the scale in mechanical or based on market structure?
Have you run the numbers on your trading method with various entry styles (scale in vs all in)?
etc...

So after spending some more time investigating scaling in this weekend, im still stumped.

It seems to me as though scaling in may be more feasible when swing trading over multiple days where trades take longer to play out and are going for larger targets. However intraday, even with the aim being to go for the major moves (ie: not scalping) I so far can't see a benefit to scaling in.

One of the main things i've been looking at is entering one lot with X risk. Then when price action develops in such a way that my stop is at least at breakeven, add another lot. In other words you're not adding just for the sake of it. You're adding because of how the market structure develops. At that point the first lot stop would be breakeven, the scaled in lot would be Y. So what would be the end result at that point:
- You have 2 lots in the market with +-half the risk
- You have reduced profit potential

So the risk has been reduced and so has the potential reward. On top of that, the 2nd lot has arguably been entered at a sub-optimal point in the market.

Another way of looking at scaling in is that the 1st lot is just a feeler to see how the market plays out initially. If the market then starts moving in your direction you add more. But in that case then why not just enter the whole position at the point where you added,...if that is a 'safer' point?

My thinking is that the point of scaling in would be one or both of the following:
- To use the profits from the 1st entry to offset the risk of scaling in the next part
- To have reduced risk at the start of the trade

Those two points make perfect sense to me, but I just cant make the maths work in such a way that scaling in is beneficial. Scaling in seems to be an extremely quiet topic which is seldom discussed in any real detail. Yet it is so common to hear pro's say they do it.

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  #69 (permalink)
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I think it is pro's who can do it because:

a) They are typically better at identifying the current dominant trend
b) They have better money management and an account size that isn't easily compromised
c) They will only do it if previous entries are already 'safe' e.g. in profit above a 61.8 retrace or their choice of condition
d) They will only add at what are also great setups in the same trend that could have been used for a solo trade
e) They know better when the opposition (typically retail) is already in a compromised position and can take further advantage

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  #70 (permalink)
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Great topic. I currently trade all in scale out but looking for a way to add tilo profitable position. I don't think scale in is only possible for l0ng term traders. It is possible for any style of trading where you go for multiples of risk as reward. You can either add after your initial position is safe and another independant entry has presented itself while you are still having a position, then it's a sensible thing to do. Or you might trade momentum strategy and add position as soon as first entry is protected. In any case its not for scalping or any low RR setups. IMO

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