You may have heard about traders entering and exiting trades, but are you familiar with scaling in and scaling out?
To take your forex trading journey to the next level, you could look into the benefits that scaling in and out can offer. When done strategically, this approach can be powerful while also offering a level of risk management. Plus, it can help to boost profitability and amplify your forex trading experience.
Strategic scaling and a good level of research, combined with a reliable trading platform, could be a valuable next move to help refine your approach. Here’s what you need to know.
Risk management
Forex markets can be highly volatile depending on geopolitical news and other updates that are circulated worldwide. Scaling in and scaling out is commonly used as an effective risk management tool.
The premise of scaling in involves increasing your position size as a trade moves in the direction you were hoping for. As such, it limits the risk of opening a more drastic, risky position with larger consequences if the market goes in the opposite direction. Scaling out follows a similar principle, only you’ll gradually reduce your position size to capture profits or reduce losses.
The gradual adjustment of your exposure is a clever tactic used by many forex traders so that capital remains less at risk. It’s a go-to strategy for anyone looking for a long-term success.
Profitability
Not only can scaling in and out hone your risk management strategy, but it can also improve your chances of profitability by maximising gains when the market turns in your favour. Meanwhile, scaling out allows you to bank these profits before the market turns again and causes you to lose these gains.
Research
Forex trading without research is unwise. Be sure to research past trends and performance data, while keeping up with current affairs.
Getting to grips with the factors that can dictate currency movements is another good area to familiarise yourself with, as this can help you decide to what extent you’d like to scale in or out. Backing up your decisions with clear and reliable data will help to increase your chances of potential profit when executing your trades.
General tips
Start by laying out your trading objectives and decide how you might be able to achieve these with goals for scaling in and out. Good, reputable trading platforms will have technical tools and analysis functions to help you back your decisions with useful insight. You can establish resistance levels too, which is the point on a price chart where an upward price trajectory is inhibited by a clear inclination to sell the asset.
Make sure you consistently review your approach, as conditions may change over time. Impulsive trading decisions are a no-go, so build a thorough strategy and stick to it, only adjusting where it makes sense to do so. The market evolves all the time, so take the time to refine your approach over time.
Also Read: What Traders Need to Know About Using Automated Forex Software
