Forex Blog Articles

Scaling Up and Scaling Out: How to Trade an Evolving Position?

January 14, 2019 | 3:14 pm | Forex Blog Articles
January 14, 2019 | 3:14 pm
Forex Blog Articles
How to Trade an Evolving Position

Effectively Utilizing an Evolving Position will increase profit growth

When considering a jump into the trade market, it’s easy to become fixated on the timing of entry. But studying the performance and readying yourself to jump in at the right moment may lead you to miss out on a crucial component. This could lead to an unsuccessful start. Entering at a precise moment can be fruitful. But it is also important to carefully consider how you will enter the market. The way you enter the market may significantly lower your risk but yield powerful gains. Successful traders would probably take an evolving position that utilizes scaling up or scaling out depending on the maturity of a profit.

An evolving position allows traders to move in small quantities, rather than jumping all-in. Following that, if the trade goes in their favor, they can methodically add more weight as needed.

Trading VS Driving 

Comparing this strategy to driving a car. When you drive out of your driveway, it’s not from sudden impulses of sitting behind the wheel and needing to drive somewhere. At first, when entering the car, there are a series of checks  – the mirrors, engine light, buckle your seat belt, etc. These are checked before turning on the ignition and shifting into gear. Once in gear, you pull out slowly, gradually accelerating more and more in order to merge into traffic. Out on the road, you accelerate or slow down to pass and avoid hazards. This is a multidimensional way of driving and familiar to most of us.

For some reason though, traders enter the market in one-dimensional mode. They in it to win all or lose all. As if the driver presses down the accelerator all the way until breaking is required  – also hoping to arrive at the correct destination. We would never drive like this and we should not trade like this either.

To Scale Up Gradually or Throw It All-In?

The trade benefits of scaling up with an evolving position (in contrast to all-in or nothing):

  • An evolving position can reduce the risk of slipping, especially if you open with large trades or even hide a large position from others.
  • It can significantly enhance gains while controlling risks on current potential trades.
  • When thinking about going all-in, consider that a large trade will result in greater profits. But with the ‘all or nothing’ risks involved, begin with a smaller trade and only add to it while you’re winning.  Here, you will set yourself up for an opportunity to earn more profit. You reduce your risk and only add to a trade if it’s lucrative.
  • It’s important to check the temperature of the market before diving all in. As the market works in your favor, add on up to a predetermined fixed amount and only add when the market reflects conditions according to your pre-strategized system. This requires a well thought out and adhered to confirmation plan.How to Trade an Evolving Position

Scaling Out of a Trade?

In contrast to scaling up in a trade, scaling out is banking a portion of the profits before a retracement is expected. Instead of allowing a trade to hit a profit target and closing out the whole position, close part of the trade and let the remaining portion move into profitable terrain. This leaves you with a profit but guarantees an opening to future gains too.

The trade benefits of scaling out with an evolving position:

  • Instead of banking the money – you can play more aggressively by moving out your stop loss and allowing the full potential go with you. If prices increase, you can scale-up more. This method is okay if you have considerably more confidence in the market breaking.
  • Similarly, you can also move your stop loss to break even when an initial profit point is struck. The good thing with this method is that it leaves you in an almost entirely free of risk position.
  • Another more aggressive way – is to bank partial profits in the mid-range. But later when you scale up, you can take your profits and re-enter with the entry that you originally wanted, rather than the original safer entry. This allows you to move on your terms.

A very important point: how do you maximize your trading potential while significantly reducing your risk. This is the ultimate potential – trading via a scaling method by setting yourself up in a position to play with the money you’ve already made.

Therefore the only time you should find yourself at risk is before the market has broken and before the first resistance line. Once prices have broken these levels, the position risk is significantly limited, if not eliminated already.

If you successfully manage this, you can increase your potential profit.

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