Scaling In and Out of Positions

So scaling into and out of your positions sounds pretty straightforward. But here is the interesting truth about many traders. They tend to scale into losing positions and then jump out of winning positions all at once.

What am I talking about here?

Adding to losing positions, believing I am right enough that the trade will turn around. Trading on hopium is what I call that.

Jumping out of winning positions. What’s that about? Well, as soon as you see green you start exiting your position, usually all at once. If you are scalp trading, sure maybe that was your intent. But many a trader will often find themselves using hindsight or watching that stock continue to rise (after a long exit) or fall (after a cover) and find themselves saying they got out too soon, or they “pikered” the trade.

So what do you do?


You scale into your positions. You take 10% of your max size and start in. If the trade does not go in your favor at a predefined point you bail, but you stay small until it works. Until you start seeing those levels test and hold (on a long) or test and fail (on a short). Add when it works. Get out of the position when it doesn’t.

Since I like to trade short most of the time, I’ll use that as an example. Scale into a short position on pops that are not breaking out or basing, when there are flushes you cover some of your position, not all of it. If the stock reverses back towards your entry, you can cover more, but if it falls below your entry, you can add back.

This is scaling in and scaling out. Letting the trade work for you, not the other way around. Yes, you must manage your trade from start to finish, but you don’t have to go all-in or all-out unless that is your intent. If it is not and you are always oversized or getting out “too soon” then scaling in and out is your solution.

You just have to practice. If that means selling or covering everything but 5 shares, do that. Exercise that ability to leave part of the position on. None of us wants to give up profits when I see them, but the point is to trade well. You can’t just be focused on making money on every trade. It’s not a bad focus necessarily, it’s just not the right focus for long-term trading success.

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