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Scaling versus Single-Price Entry and Exit

Написано EneaDoku , 13 Март 2017 · 469 Просмотров

Опрос: Test Yourself Before you read on (1 пользователей проголосовало)

Do you take often partial profits from your positions?

  1. Yes (1 голосов [100%])

    Процент голосов: 100%

  2. No (0 голосов [0%])

    Процент голосов: 0%

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Изображение

You don’t have to get into or out of a position all at once. Most traders tend to pick a single entry price and a single exit price. It is often better to scale into and out of positions. For example, consider a common dilemma faced by traders. Let’s say you have a strong conviction that a market will move higher, but prices have just witnessed a significant upswing. You are concerned that if you buy now and there is a correction, the initial loss may force you out of the market, even if you are right about the long-term direction. On the other hand, if the trade is really good, there is a substantial chance that waiting for a pullback will result in missing the entire move. There is a third alternative, however: You can buy a partial position at the market and then seek to enter the remainder of the position using a scale-down entry process. This scale-down buying approach will ensure that you have at least a partial position if the market keeps going, without assuming the implicit risk of buying the entire position after a substantial advance. By reducing the average entry price, it will also mitigate the chances of abandoning a good long-term trade because of an initial loss from entry.

An analogous perspective would also apply to getting out of a position. For example, assume you are in a long position with a large gain and are concerned about surrendering those profits. If you get out of the entire position and the advance continues, you can miss out on a substantial portion of the total move. If, however, you hold on to the entire position and the market reverses, you can end up giving back a large portion of the gain. As an alternative, scaling out of the position will ensure that you still have a partial position if the move continues, while mitigating a surrender of profits if the market reverses.

Avoid the temptation of wanting to be completely right. By shunning all-or-nothing decisions and instead scaling in and scaling out of positions, you will never get the best outcome, but you will never get the worst one, either.
2 Questions for you.
Answer in the comment section below, remember you can learn by reading but you will learn more by interacting with other people. I will make sure to reply to all of them.
  • Can you remember the last time you ended up in a all-or-nothing trade ?
  • Would you rather open and close you position all at once or partially moving in and out of the position?


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