If you are wondering what the term scaling in means then you have come to the right place. Scaling into a position used by traders in Forex to try to get more from the market during certain criteria on a chart. How it works is different to risking all on one trade, instead it generally is used as a way to break up a trade into smaller sizes and for the broken up trades to only open up as the original trade goes deeper or further into profit.
This is a perfect example of a normal trade
1000 units Long NZD / USD – It depends on your choice however overall you want a market that you believe will move a lot in your favor.
This is an example of Scaling into that same trade
100 units per 3 to 5 pips as the long position increases in profit
- 1 x 100 units at 1.0350
- 1 x 100 units at 1.0355
- 1 x 100 units at 1.0360
- 1 x 100 units at 1.0365
- 1 x 100 units at 1.0370
- 1 x 100 units at 1.0375
- 1 x 100 units at 1.0380
- 1 x 100 units at 1.0385
- 1 x 100 units at 1.0390
- 1 x 100 units at 1.0395
- And lastly one 100 unit trade at 1.04
– Of course each trade can be broken up however you like, this is just an example of an extremely low risk way of scaling into a trade position. ( 1000 unit total divided into 10.. )
Making it a total of 10 trades each adding up to 1000 units total. This is best performed once the market has receded to a strong support level and then only place the buys in the direction of where you believe the market will head. One of the most positive aspects of this strategy is that it opens trades only as previous trades go into profit. However the negative side is it lowers the profit value compared to a single 1000 unit trade. However with that being said it can always if unlucky turn around juts after the last trade opens so it is important to be on your toes if you wish to try this method and to also be willing to risk the amount whether it is a broken trade or not.
Image – Example image above of scaling in on a Forex Trade. Each blue line is a another trade opening as the market moves back on the NZD / USD on the Four Hour chart. In the chart it shows openings from 0.8100 all the way to 0.8150 with taking profit staring happen not long after last trade opening around 1.8170 to 0.8180 area. The beauty is you can hold onto certain trades longer or shorter depending on your risk assessment as the market moves in your favor.
Either way scaling in whether going short or long is a technique if mastered that can be both positive and negative and allow the trader to close some trades in profit even if the market turns against them near the end of opening all positions.