[es] Scale_up or Scale_down

[Jugador 10]

Which style do you guys prefer, and why?

[diablo272 10]

It depends on you and your strategy.

 

http://www.investopedia.com/articles/forex/06/ScalingUp.asp

[Jugador 10]

Yeah, I hear ya. I was thinking about scaling down, but I thought there might be some experienced traders here who've "been there done that", and might have some "words of wisdom" before I embark on my trading adventure. :o BTW...thanks for the link!

Edited February 25, 2009 by Jugador

[wjrusnak 10]

Personally, I don't like the idea of scaling up. If you get a good 5 point move, then you buy more, and then it moves against you back to where price started, then you're now losing instead of breaking even. By scaling up, you raise your average instead of lowering it (speaking in terms of going long). I don't like it.

 

Scaling down on the other hand, lowers your average, which makes sense, but I also think this traps people into not taking profits with a good trade. Say price goes against your position and you do buy lower. Then price gets back to your new average and you're at break even. Good advice given to me is when you're back at this break even mark, take off the position that you bought lower. Don't just say "okay I'm back to zero, so I can ride this higher with double the position." By taking off the "good trade" (i.e. the one bought at a better price), you are left with your original position, but now you didn't lose anything, even when price went against you.

 

Also, this depends on your market and your tolerance. I wouldn't suggest scaling down 5-6 times when trading a leveraged and volatile market like the futures markets. Really you have to assume that if you're scaling down, you made a mistake with the first position. How big of a hole would you like?

[Jugador 10]

How big of a hole would you like?

 

:rofl: Thanks, interesting stuff.

[Jugador 10]

Personally, I don't like the idea of scaling up.

 

I'm not trying to make Boris Schlossberg look bad. I think he has some keen insights into trading, and I've read all his articles. But, I thought this was kinda funny. In the article diablo gave a link to, he says "Almost everyone who has ever traded has scaled down into a trade at least once in his or her career. This very common mistake stems from the need to be proved right. The thinking usually goes like this: if you liked the EUR/USD long at 1.2000, you'll love it even better at 1.1900 - it's a better bargain! Of course, the market eventually teaches all traders the folly of such thinking. Follow the scale down strategy long enough, and you will eventually go broke.

 

Then in an interview in his "Millionaire Traders" book you hear this from one of the successful traders "That to me is absolutely the key to my success. I average in on

every trade I make. Before I would get upset, but now I love it because I feel like I can get in at a better price, so I hope it dips another 10 pips.