Scaling in to winning trades

[Laissez Faire]

Scaling in, in general, seems to be a technique employed by more experienced traders. Any thoughts here on it?

I do it routinely and my initial entry is always on my smallest size. The only trading rule I seem to be able to follow 100 % is that I never add to a losing trade since I know that this isn't mathematically sound and eventually ends up giving you a huge loser, even if it can work short-term.

Adding to a winner works great if you're an intraday swing trader or swing trader on higher time frames assuming the market is actually trending and making a larger move. I've captured some huge winners on multiples of my regular size doing this.

However, if you do it when the market is stuck in a range, you'll usually end up taking a lot of B/E entries or smaller losses on larger positions as the market will revert back to your entry. This happened to me a few week backs when the volatility dropped and the market was stuck in a range for a while. The result was that what could have been marginally profitable days as my original positions would actually have been profitable ended up being scratches or losses.

So, in summary, it works great, but you need to know when to do it and when not to.

I think it was @SteveH who first introduced the idea to me here on the boards. Pretty sure I've read that @comagnum does this as well. But if you know your trading history, Jesse Livermore was an advocate of this as well.

 

[David's faith]

I'm a Brooks fan and do as he does - scale into losers if the trade you saw is still valid and price moved against you. BUT I use algos. So I press a button and the algo does the scaling, target and stoploss, therefire I have no risk of adding and adding to the position all the way to the bottom of my accounts. Happened to me when I was a rookie and traded manually and emptied my beginners account (lol). So if you do use scaling I highly recommend to automate the management of it. The advantage of scaling into losers is a better risk reward for the same trade, as your entry is better then the first one, target and stoploss are the same. However, I am a swingtrader and scaling into losers is not so viable for daytraders, as the difference of a level holding or not is tighter as it is on higher TF.

 

[rajesheck]

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?

Interesting post bro.

My thoughts...
Though stock trading is legally a business, most traders are estimated to be losing may be because they have relatively gambling mindset which influences their trading decisions or behaviour.

There are two ways towards becoming a better trader...
1. Learning purely from own trading experiences
2. Learning both business mindset and trading skills.

While vast majority of traders may probably prefer the first path, pros are created in the second path, or atleast I believe so.

 

[trismes]

It’s tough but as others has said by itself it offers no advantage; a multiplier of your gains losses.
There are two ways of approaching it, either you start with lower risk, scaling in to full size. Or full risk, and treat each add as a new trade which can only be done once your entry is at b/e. The latter, wheels within wheels is my preferred approach but it depends on accuracy /strike rate.
Like with averaging down it’s perfectly acceptable so long as you know in advance your full risk in this overall trade and you don’t digress. The difference is when price moves in your favour, the overall trade risk is decreasing so there’s more headroom unless you’re treating your positions as mark to market .

 

[Blitzjoker]

Many thanks for all the thoughtful comments. I am going to attempt to load an image of the market I was trading to show a few points. If this fails, I'll probably just delete this post.

 

[rajesheck]

Many thanks for all the thoughtful comments. I am going to attempt to load an image of the market I was trading to show a few points. If this fails, I'll probably just delete this post.View attachment 316809

My instant thought was "A one minute line chart would be more understandable than any indicator."

 

[VEGASDESERT]

there is 1 variable for day traders that people forget, time.

if a position is going against you more and more, time runs out to move back to profitability.

as a position moves in your favor more and more, as time runs out on the day
there is less chance your profit will evaporate.

imo its a big variable that matters a lot over the long haul.

 

[Blitzjoker]

Success; so this is a 5 minute chart of yesterdays SPX. I had entered pre-market open (14:30 here in the UK) so already had a reasonable profit at market open.

As you can see, the market rose quickly from the open, which is when I scaled in as I figured this was a high probability trade. I exited all trades by around 14:39 at around 4308. Most started at about 4301.

The market continued to climb after this, but there was enough hesitation that I thought it best to get out around there. I know from experience that there can be sharp reversals near the start of trading even after a strong rise.

I did enter a couple more single bull trades for scalps after this before deciding that was enough for a while.

So none of this is bragging (I only made a few pounds anyway). I know full well that the trades could have failed, and in that case I would have exited quickly. But sometimes you just know that you have hit a sweet spot, and chances are very good that the market is moving up at least for a while. It seems to me that in those situations, scaling in can be a useful addition to your trading skills.

Incidentally, the chart also shows one of Al Brooks ideas in action of scaling into losers (don't try this at home kids, unless you know what you are doing).

After the peak at around 4320, the market pulls back quite steeply, and then rallies again to 'test the high' as Brooks has it. It is in these kind of situations that he thinks scaling in to a loser (if you had bought at the high say) can help avoid a loss.

If you are nimble and scale into a second trade at around 4314 say, you could end both trades at around 4317 and break even. I have managed to do this successfully a few times, but you have to watch the trades like a hawk (or automate them) to avoid the risk of a big loss. The key is the price action; I think Brooks is right, that there are few V shaped market moves after a strong trend, usually the market will test the previous high to some extent before moving decisively in the other direction (or occasionally the original trend will continue; more oftenthere will be a trading range).

Brooks seems to recommend holding on to break even on the first trade, and make a profit on the second one, which seems a bit ambitious to me. Quite often the market will get close to the previous high, and then plummet fast, as presumably lots of traders are waiting to get out of losing trades at this point.

A final point here; the sharp fall from 16:15 onwards looks like a classic Lower High Major Trend Reversal in Brooks speak. A break of the bull trend followed by a test of the high, then a decisive move in the opposite direction. I did guess this might be the case at the time, but hadn't the nerve to trade it.

I know that there are mixed opinions about Brooks, but his books and videos have convinced me that there is at least something to this technical analysis lark. It is a very inexact science (as he fully acknowledges) but there seem to be enough patterns that repeat over time that might give an edge. I doubt that anyone else covers the ground as exhaustively as Brooks. Just keep well stocked with coffee when watching his videos (I have fallen asleep many times). His rather monotone delivery though is a welcome relief from the more frenzied charlatans so common on youtube.

 

[David's faith]

Success; so this is a 5 minute chart of yesterdays SPX. I had entered pre-market open (14:30 here in the UK) so already had a reasonable profit at market open.

As you can see, the market rose quickly from the open, which is when I scaled in as I figured this was a high probability trade. I exited all trades by around 14:39 at around 4308. Most started at about 4301.

The market continued to climb after this, but there was enough hesitation that I thought it best to get out around there. I know from experience that there can be sharp reversals near the start of trading even after a strong rise.

I did enter a couple more single bull trades for scalps after this before deciding that was enough for a while.

So none of this is bragging (I only made a few pounds anyway). I know full well that the trades could have failed, and in that case I would have exited quickly. But sometimes you just know that you have hit a sweet spot, and chances are very good that the market is moving up at least for a while. It seems to me that in those situations, scaling in can be a useful addition to your trading skills.

Incidentally, the chart also shows one of Al Brooks ideas in action of scaling into losers (don't try this at home kids, unless you know what you are doing).

After the peak at around 4320, the market pulls back quite steeply, and then rallies again to 'test the high' as Brooks has it. It is in these kind of situations that he thinks scaling in to a loser (if you had bought at the high say) can help avoid a loss.

If you are nimble and scale into a second trade at around 4314 say, you could end both trades at around 4317 and break even. I have managed to do this successfully a few times, but you have to watch the trades like a hawk (or automate them) to avoid the risk of a big loss. The key is the price action; I think Brooks is right, that there are few V shaped market moves after a strong trend, usually the market will test the previous high to some extent before moving decisively in the other direction (or occasionally the original trend will continue; more oftenthere will be a trading range).

Brooks seems to recommend holding on to break even on the first trade, and make a profit on the second one, which seems a bit ambitious to me. Quite often the market will get close to the previous high, and then plummet fast, as presumably lots of traders are waiting to get out of losing trades at this point.

A final point here; the sharp fall from 16:15 onwards looks like a classic Lower High Major Trend Reversal in Brooks speak. A break of the bull trend followed by a test of the high, then a decisive move in the opposite direction. I did guess this might be the case at the time, but hadn't the nerve to trade it.

I know that there are mixed opinions about Brooks, but his books and videos have convinced me that there is at least something to this technical analysis lark. It is a very inexact science (as he fully acknowledges) but there seem to be enough patterns that repeat over time that might give an edge. I doubt that anyone else covers the ground as exhaustively as Brooks. Just keep well stocked with coffee when watching his videos (I have fallen asleep many times). His rather monotone delivery though is a welcome relief from the more frenzied charlatans so common on youtube.

So true. He teaches some things others just don't, like that the market has inertia, after a sluggish trend expect a trading range etc. Very useful as a learning floor for further discoveries on price behavior

 

[hilmy83]

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?

After reflecting on this question for a bit, I do have another question. Instead of scaling into winners, why not just take individual positions one at a time with fixed profit/stop? In a given trend, you could have a few trades in a row with profits rather than trying to work out a single position with multiple entries.

ps.
I didn't mention scaling into losers cause it's the most fucked up way of trading that's been taught over generations. It's just garbage period. You feel good cause you're capturing consistency due to reversion, but after few weeks/months, you'll be fucked royally by a stubborn trade. Don't do it!