The way I've seen reverse scaling and the way I do it is pyramiding. A pyramid gets smaller as you go up, yes? Say the initial size is X. The next levels up would be some fraction of X, not a multiple of it. I also trail stops on each level independently, reducing risk as it progresses.
Scaling into a position - any suggestions on how to manage the downside?
- Thread starter DEM BONES
- Start date
The way I've seen reverse scaling and the way I do it is pyramiding. A pyramid gets smaller as you go up, yes? Say the initial size is X. The next levels up would be some fraction of X, not a multiple of it. I also trail stops on each level independently, reducing risk as it progresses.
I understand what you're saying by building up a "full size" position in increments as price moves against you in a small zone. The problem is that you'll occasionally be hit with a full size stop-out anyway. Also, you'll occasionally have a 1/10 position take off in the right direction. This sounds good, but when you're right you want to have more skin in the game in order to balance out those full size stop-outs.
Mathematically this still doesn't work out.
BTW, this is a really old debate that crops up here periodically. The other great debate concerns whether scaling out is good or not.
I contend it simply doesn't work at all long-term for anyone.