I have no intentions of click baiting any body ever, so believe me when I tell you, this tip literally changed the way I traded for the better.
Most of the experienced traders use this tactic but as beginners its never brought up for some reason.
As a beginner trader or even intermediate trader we often get caught up with what broker to use, how much commissions are going to cost, which setups will be the best etc.
And those are all important factors to go over. But the step I’m going to talk about shocked me because it made so much sense but no a lot of people i followed would really use it.
To cut to the chase….Its Scaling In To Your Position.
Now some will say “OK, I’ve heard of that before, this isn’t new”. I am not here to claim that its new, only that its unspoken about.
Lets talk about why scaling in to your position is so important.
When we are ready to take a position we often think of entering how whole position at the exact price that we want. For example…
“I want to buy 2,000 Shares at $5.00 dollars for a whole dollar break.” That’s all good and dandy, but the problem with this approach is that the setups that we are use to are not always exact.
So that price could actually go to $5.25 and then go back in your favor. However, most people would usually get shaken out well before it gets to $5.25, since there all in with there size.
I am going to give an example of a trade I did this week where I got stopped out because I couldn’t tolerate the draw down.
As you can see above, I entered at $13.68 with half of my size because I got F.O.M.O (FEAR.OF.MISSING.OUT.) and wasn’t prepared.
I quickly shoved the order in, and because of that, when the price went against me, I had a big draw down for my position.
So I exited, just for it to top out $.20 cents above my exit and swing back down in my favor.
To make matters worse, it hits my profit target. This would have been a $500 dollar profit minimum, and a $1,000+ dollar profit if I had got my all my size in with a SOLID ENTRY.
Now, how should I have gone about this?
First things first, I should never have dumped half my size into the stock, especially at a price point that wasn’t close to the best price.
I should have started with 100-200 shares max. This would have allowed me to be involved in the trade but not sacrificing so much. I would be able to let the trade play out.
If I was only 200 Shares in and the stock hit 14.08 (where I originally stopped out), I would have been down -$80 dollars instead of -$200 dollars. This would allow me to continue to add as long as the stock was still showing signs of a reversal.
Second thing I would have done differently was start scaling in short on the pops, instead if on that dip. That’s was F.O.M.O (Fear.Of.Missing.Out) will do. All of your rules tend to get thrown out the window.
Remember, Buying dips or shorting pops will add to your profit and reduce your loses. See the post I had on that.
Being able to scale in will give you a much better entry most of the time because you have multiple chances to get a better price. That’s the key.
You throw your starter order out, maybe its a good entry, maybe its not. It doesn’t matter, you have 3-5 more tries to get a better price average. That’s the beauty of it.
And because you have multiple tries, you will be less stressed and less tense about entering the position.
This is just the beginning of me speaking about scaling in, that’s how passionate I am about it.
Take care for now, and I hope this helped!
If you have any questions, feel free to leave a question in the comments, or email me.
Have A wonderful day!!