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Scaling Into Trades. [ Ссылка ] PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! Pyramiding into trades and adding to winning trades. We just looked at scaling out of a trade, and how this can be an advantage psychologically. Nevertheless, it is somewhat controversial and not a practice accepted by all traders. Now we look at the opposite, that is scaling into a trade, starting small and then adding to it.

Think back to our discussion on trading a trend, and identifying pullbacks. We noted that a trend will rarely cause the price to go straight up, but often will include pullbacks or retracements, each of which may be about one third of the previous push up. Although not all trends will exhibit this three-phase movement, it is quite common.

If we had taken a trade at the start of this trend, and the price then pulled back, we might look to add to our trade in time for the second push upwards. This has several advantages. We keep our early risk low by not trading with the full value, and allowing the security to develop. But once it has proved itself with one push, we may feel confident that there is more to come.

There are many other considerations to adopting this strategy. For instance, it may be that the price is building back up to a previous high, and we anticipate that it will reach a higher level than it has at present. Looking back over the chart may show us a support or resistance level which can be taken as an expected target for this current move.

Going on, even after a second move upwards we may feel that there is more to be had, and look for the next retracement for another entry position to add to our holding. In the end we finish up with a large position which goes all the way to the top, and a much larger profit than if we had stuck with the original trade only.

All this trading and adding to the position must be done sensibly. Each time you add to your holding, of necessity you must review your stop loss position for the entire trade. In other words, our stop loss is stepping up as the trade steps up, a topic which was covered in a previous lecture. Moving the stop loss up locks in profit for the original funds, as well as providing a limit on any losses for the new money.

Be careful not confuse this technique with that of “averaging”, which in general is a bad idea. Usually you encounter this when someone recommends averaging down by buying more stock. You bought some stock, it went down, so if you buy more the average price that you paid for the stock is less than the price you started with. This is somehow meant to be an advantage to you, and as the price falls you can buy more stock and “average down” your purchase price. But at the end of the day, you may be left holding stock which isn’t worth much, and certainly isn’t worth as much as you paid for it.

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