Before reading this lesson, you should have previously read through:

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What is scaling?

Scaling is a method of trade management that allows you to reduce potential losses and maximise potential profits, despite the fact that the future price movement in the market is unknown. There are two types of scaling: scaling in and scaling out.

Scaling in

Scaling in

Scaling into a trade means that when you enter the market, you initially enter just a fraction of the total position that you intend to trade and then observe how this initial market entry develops. If the trade works out as intended, then you can enter further positions in the market and take advantage of the price moving in your favour.

The following chart demonstrates an example of multiple entries as the uptrend develops.

Chart scaling in

el1 First entry
el2 Second entry
el3 Third entry

The first position is entered when the market has shown a clear trend to the upside. A second position is entered after a pull back in the market and then started to continue on in the original direction. As the trade continues to go well, a third position is entered after a second pull back.

The benefits of scaling in

Let’s say that you wished to enter into the above trade with a standard lot. The trade will either win or lose, however by entering just a fraction of the standard lot, you reduce the total risk.

By breaking down this position into mini lots and only initially risking, say, 5 mini lots (half a standard lot) on the first entry, you will lose much less if the trade does not work out compared to if you entered with a full standard lot.

If the trade starts to go in your favour, such as the example shown above, then you can add to the position – for example, another 3 mini lots. If the trade continues to go well, as above, then you can enter two more mini lots.

Scaling in can be beneficial because you can add to your position as the trade goes in your favour, but if it turns against you immediately, you only lose a small amount of your capital.

Without scaling into the trade, you would enter the market with your entire position (in this case a full lot) which means that more would rest on your judgement of the trade being correct.

You can also add more than just the intended amount. Let’s say that the trade is successful and the initial position that you entered is now in profit. If you bring your stop loss up to the initial entry point, then you have taken any risk you had out of the market. This means that you can continue to increase the position size and keep adding to the winning trade beyond the amount that you initially intended to enter.

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The risks of scaling in

The most prominent risk of scaling into a trade is that it can increase the overall exposure of your account, which is why it is essential to apply appropriate money management, that means only risking 1-2% of your trading capital on a single trade.

The risk of scaling out is that if the trade reverses against you, the more positions you have open, the more you can potentially lose. Always apply sound money management when scaling out.
Even if the market is trending in your favour, there is always a danger of the trade reversing against you and the more positions you have open, the more you can potentially lose.

Also, as you enter positions while the trend develops, the later positions that you enter with may be closer to the end of the trend. It is advisable to be cautious when you are getting into a trend that has already been established for a while, as demonstrated in the chart below.

Chart risk scaling in

el1 First entry could end up with a small profit
el2 Second entry would probably end up with a loss

Scaling out of trades

Scaling out

Scaling out is a similar concept. Let’s say that you have a total position of one standard lot in the market, and the trade is in profit. You may have reached your initial profit target, but it seems like the market could continue to go in your direction. In this instance, you can close some positions to take profit and leave some positions open in order to take advantage of potential further price movement . By doing this, you maximise your gains by locking in the profit you have, while still having a position to take advantage of further price runs. You can see an example of this in the chart below.

Chart scaling out

el1 Entry
tp2 First exit
tp3 Second exit
tp4 Third exit

The chart above shows a winning trade was scaled out as part of the position was taken off at each stage of the upward move. The first exit was taken out of the market once the initial move upward had finished, leaving two further positions to take advantage of the continued upward trend.

This technique reduces your overall profit, because of course you would have made more if you had left the entire position open for the duration of the entire upward move. However, scaling out protects the profit you have. For scaling out to work well, the market needs to be trending.

Summary

So far, you have learned that ...

  • ... scaling is a method of trade management that maximises profits and reduces risk.
  • ... scaling into a trade means that you enter with just a fraction of the intended amount that you wish to trade and then add to the position as the trade develops.
  • ... scaling out means that you exit fractions of your position to lock in profit and leave in positions to take advantage of any further price runs.
  • ... there are certain risks to scaling if you do not apply money management as this can increase the overall exposure of your account.
  • ... caution is also advised when scaling in after a trend has been firmly established, as the later positions entered may be close to the end of a trend.

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  • Video Time mark 3:29 - a little mistake: should have been "Scaling out" instead of "Scaling in".
    Great videos btw!
  • In the text there is also some mistake were it says scaling out instead of scaling in. It should be corrected.
  • Hi Pskent,
    could you quote the mistake? regards.
    Peter
  • As melissafan said there is mistake on the video which has still been corrected.

    Then on the lesson the error is on the second note "The risk of scaling out is that if the trade reverses against you, the more positions you have open, the more you can potentially lose. Always apply sound money management when scaling out."
  • I see now, thanks for the heads up! We will rectify it as soon as possible!
    Cheers.
  • You're welcome wink

    Previously: I wanted to say :"As melissafan said there is mistake on the video which hasn't still been corrected."
  • Question 7, "why might you scale out of a trade?", one of the answers is "because you think the market will continue to move in the direction of your trade" that doesn't make sense.
  • "You may have reached your initial profit target, but it seems like the market could continue to go in your direction. In this instance, you can close some positions to take profit and leave some positions open in order to take advantage of potential further price movement . By doing this, you maximise your gains by locking in the profit you have, while still having a position to take advantage of further price runs."

    the question i think is 50% correct and 50% wrong LOL
  • Well the only reason you should scale out is if you think your position might reverse so you protect some profit, if you think its going to continue you want to max profit and hold or add to your position.
  • nop sorry i have to disagree.

    1) keep in your mind you never will know for what direction the markets go!

    So Despite thinking that goes down for example you close some trades to maintain profit and you can leave 1 or 2 are open to try and see if you win some more


    This is a true exemple of this storry:

    every day your cicken give 1 golden egg, but you want more so you kill the chicken to try have 10 eggs, but in the end you will have 0 eggs because the chiken is dead

    end of the storry
  • Its a matter of probability. If there's a high chance of it continuing hold or add, but if prices start to consolidate or you spot another indicator showing slowing momentum then you should take some off.
  • read the sotrry and don't be to greed just my opinion
  • FreeLancer:
    read the sotrry and don't be to greed just my opinion

    Mmm it depends I thinkyou must make sure you are not to fast with closing trades.
    Those fast closes with small wins mess up your statistics in the long run, the less you win on each trade the more trades you need to win. But then again i agree aswell that sometimes its better to be safe than sorry.
  • all depends from person to person strategy to strategy
  • Question 1 in this lesson, answer 'maximise potential profit' WRONG. Scaling in splits your positions into fractions, therefore you reduce risk at the cost of potential profit. It is scaling OUT that might, in certain circumstances maximise profit (e.g. you closed the trade before market moved below long or above short, then reopened long lower or short higher). With scaling in - if the market goes in your favor - there is no chance of maximising profit in comparison to opening full position straightforward (even taking into account covering margin with profit, you still get more profit and margin covered by opening full position).
  • Hi Arjaq,
    It comes really down to how you interpret the sentence. It can maximize potential profit if you add to the position if it goes in your favor. Scaling in means starting small (small risk/small potential gain) and adding as certain criteria are met (increasing potential gain with not necessarily increasing risk).
    Regards.
    Peter
  • Well, I still think that answer should be edited. Mathematically it makes risk much smaller together with smaller gain as final result. In comparison with opening standard position, that is. I'd still need to make some calculation whether it makes income smaller also when trade goes not in favor but when opening position again after some time (sticking to 2% capital riskng rule). Of course opening part of the position allows us to diversify investment by taking new position on some other asset in the same time, yet still that one was not mentioned on that lesson.
  • Please also keep in mind that scaling in can be done at least 3 ways:
    -adding as position goes against you
    -adding as position goes in your favor
    -position building

    at the 2nd you maximize profit as trade moves in your favor, at the 3rd you maximize profit without taking extra risk on!
  • we can not scaling in and out in MT4 , only by opening many positions
    what trading platforms support scaling in and scaling out ??
  • Hi Elie,
    In a way scaling in is always opening more than one position. But some platforms make it easier. For example in Tradable you can enter "one position" with Machine Gun but it gets split up into more so you can manage them separately. Also Autosplitter allows you to set multiple TP with only one click of a button.
    Try it to see it for yourself!
    Regards.
    Peter

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