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Scaling into Trades for Profits

InvestorEducation / Learn to Trade Jul 21, 2010 - 08:04 AM GMT

By: David_Banister

InvestorEducation

At Active Trading Partners, we believe that nobody can predict exact bottoms nor tops, but we can certainly come close. In light of that belief, we “scale in” to our preferred trade set ups using 1/3 tranches at a time. Using our backdrop of looking for waterfall decline entry points for reversal profits, we add in some Elliott Wave theory and Fibonacci figures to mix up our recipe.  As we see a trade set up coming around the bend, we begin to “Scale In” to our trades as each Fibonacci or Wave pattern is reached.


Samples are our recent trade into BGZ, which is 3x short the Russell 1000 Index.  The Elliott Patterns we interpreted said the market rally would wane as we hit 1071/1074, 1085, and 1092.  As those areas were hit on the SP 500, we would purchase 1/3 positions into BGZ, inevitably profiting from the overbought reversal to the downside in the markets.  This reversal happened on cue on Friday last week, July 16th.  Our BGZ position rose 8.5% in just one day of trade, allowing us to enter into a “green” profitable territory on our scaled in position.

Scaling in eliminates the traders desire to let the ego over-take their emotions.  By this, we mean your trading system is useless if your emotions can’t be kept in check both on the downside and the upside.  At ATP, we try to combat that by scaling into and out of positions, forcing ourselves to buy while others cry… and sell when they yell.  It is extremely difficult to go counter-trend against the noise of the markets, but certainly if you plan to do so you must have a plan of action. 

Trading with emotion is a sure-fire way to lose money in the markets.  Taking your time and being methodical with scale in entry points into a trade, reduces your risk of entry and allows for a much greater probability of profits, as well as greatly reduced losses on the trades in which you are wrong.
Never dive “all in” into a trade position, no matter how confident you are of the entry timing, chart, and price. 

Always scale in methodically.  Worst case the position takes off to the upside for you and you didn’t buy a full position, but that is so much better than going all in one one trade and mis-timing your entry, costing your trading account major dollars.

Dave Banister

CIO-Founder
Active Trading Partners, LLC
www.ActiveTradingPartners.com
TheMarketTrendForecast.com

Dave Banister is the Chief Investment Strategist and commentator for ActiveTradingPartners.com.  David has written numerous market forecast articles on various sites (SafeHaven.Com, 321Gold.com, Gold-Eagle.com, TheStreet.Com etc. ) that have proven to be extremely accurate at major junctures.

© 2010 Copyright Dave Banister- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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