I only trade a very small size with a small account, but today I successfully scaled in to a winning trade for the first time. This feels like a bit of a game changer to me. I read about it recently in Best Loser Wins by Trader Tom (Tom Hougaard), which I can very much recommend. Most of us here have probably had that wonderful (but fleeting) feeling when we are on the right side of a fast moving trade. The market is clearly urgently looking for a new level, and it is in these few moments that I think scaling in could be a good technique (though probably not for a beginner). I exited all the positions once the trades began to falter, as clearly a fast move up can quickly be followed by a fast reversal in a volatile market. Interestingly, Al Brooks remarks in his video course that he very rarely scales in to winners, as it increases risk, and also increases your average entry level for a bull trade. He does not however advise against doing it, just says it is not for him. He is a keen proponent of scaling in to losing positions though, provided your original premise for the trade is still valid, and the market has reversed back in your favour from a lower position. Other posters here have used this technique with success, though it certainly needs to be handled with care, as your mind can use it to justify holding on to bad trades which is clearly not a good idea. Scaling in, in general, seems to be a technique employed by more experienced traders. Any thoughts here on it?
That book is the first thing I thought of when I saw the title of the thread. Best trading book I've read. And I've read dozens.
I am siding with AL brooks. My thought exactly win I scale into winners. It's more detrimental in the long run. You're essentially putting more risk and chasing. This only works if you underbought and the market hasn't moved very far from your entry while
On Tom Hougaard website, tradertom.com, there is some great insights in the Recourses section "In memory of Avid Trader" material.
A couple more trades with unfavorable outcome and you'll forget all about it. The market is not so easy. I am not saying it's not a good method, it's just that nothing works perfectly all the time. And one has to understand the reason for adding instead of taking the profit and run.
It it two sides of the same coin. Both have equal risk and equal reward, just doubled or tripled or however many more of the instrument you added to the original position. When you scale into a winner, you simply lose your profits that much faster when it moves against you. All proportional.
A whole level more complex. Just because one can get in and get out doesn't mean they should or could scale properly. It is like taking a separate trade with a much more complex risk management due to the original position. If you have an algo trading for you, then it is reasonable to consider adjusting to scale, but it is best to start with a system where scaling is integral to the system, instead of adding it in. Likewise for manual trading. Start with it baked into the system, don't just glob it on. Manual trading, lacks the feedback necessary to do it correctly, or "get the hang" of it, for the long run, until you have 500+ trades. In that 500 trade learning curve, it is a poor risk reward scenario with a "scaled" PL. Plus time is money.
There's certainly no edge in the structure itself. It's primarily a coping mechanism for trend followers to take on larger positions than they otherwise would dare. It can be "useful" in that capacity, but it's an issue how it subjects you to slower starts (missing part of the alpha). Better is to just go to the adequate position size immediately. Where I do think it's rational is when you gradually realize a move is becoming much stronger than you anticipated (as a discretionary trader, e.g. because it takes time for the human brain to process new info). So when you realize you underestimated the move you might as well go in harder at that point in a single scale up.
I'll scale into a trade that is moving in my direction under certain conditions. I get another set-up on a position I already have. The stop being hit on the additional trade won't cause a loss on the originial trade.
I'd say the vast majority of catastrophes have occurred when people have averaged into a losing position and gotten blown out as it relentlessly went against them. So logic and common sense says do the opposite, add to a position going in your direction with basic stop rules and you'll get the occasional huge win. Easier said than done but logical. people wonder why their account is at a loss when most trades are kind of 50/50 shouldn't they at least be break even and answer mainly is you take a ton of risk as a trade is going against you and you take minimal reward when it's going in your favor so averaging up avoids that stupidity