Smoothing Out Your Trade Execution
In this video, Roger Hawes, an analyst at Corellian Academy, discusses a trading technique referred to as "scaling in" or "layering." This approach is intended for traders seeking slightly longer-term opportunities in the financial markets, as opposed to those who concentrate on short-term, high-frequency trading.
Hawes starts by introducing the concept of scaling in as a technique for improving trade execution. This approach can be especially advantageous for traders who aim to achieve gains of 1%-3% over a longer period, with a focus on trending and thematic movements.
Hawes also highlights the importance of avoiding impulsive trading, where fear of missing out leads to hasty positions and random entry points and is considered a common trading problem.
Accordingly, prior to executing a trade, it is important to evaluate the market and determine the timing. If the trade is time-sensitive or if there are better entry points available, a trader should analyze market conditions, including interest rates, reports, and other market buzzes. Also, using Technical analysis tools, such as support and resistance lines, Fibonacci levels, and Bollinger Bands, can help traders make more informed decisions.
Furthermore, to limit potential losses, traders can start by buying a portion of the risk (for example, 20%) at a reasonable entry point, setting a stop-loss level below a key support level (for example, Fibonacci level), monitoring the market for opportunities to buy additional portions of the risk at better prices, and building the position gradually with a well-defined stop-loss. Traders also need to maintain a positive risk-reward ratio in order to ensure successful trading.
This strategy focuses on minimizing potential losses by scaling in and placing stop-loss orders at strategic levels to reduce the impact of incorrect trade entries.
Overall, scaling in can help traders psychologically by reducing the impact of large losses, preserving confidence, and enabling more rational decision-making when the potential profit significantly outweighs the risk taken. Still, it is important to note that this strategy may not always work.
Nonetheless, although traders may not always be able to complete all tranches when scaling in, the strategy's benefits in reducing risk outweigh these potential downsides. Eventually, over time with a series of trades, adopting a scaling-in strategy can result in more consistent and profitable trading.
To conclude, scaling in can be used as an alternative strategy for entering positions by focusing on scaling in gradually rather than committing to a full position instantly. In addition to improving trade execution, reducing risk, and increasing long-term trading results, this strategy also promotes a disciplined, rational approach to trading.
