Scaling in Trading – Forex Trading Technique Explained
Are you interested in the foreign exchange market, also known as forex? People who aren’t familiar with the forex might not be aware of one very interesting fact. Forex is the largest financial market in the world. It is the largest, most liquid, as well as and active marketplace. So, it makes sense to learn more about forex.
What do you think about scaling?
We have good news for traders trading several position sizes. Hopefully, scaling has the potential to solve many of your problems.
First of all, what is scaling all about? Don’t worry; you don’t have to use Google Search in order to learn more about “Scaling in trading.” There is no need to type “What is scaling in trading?” in Google Search.
No, you don’t have to check your weight. Without a doubt, it is a good idea to allocate more time to such topics. However, this article isn’t about the importance of a healthy lifestyle.
You might ask, “What is scaling?”
It essentially means adding or getting rid of units from your initial open position.
It is worth noting that scaling has the ability to help modify your overall risk and lock in profits. Furthermore, it can magnify your profit potential.
You need to remember that when you add or remove from your position, you shouldn’t forget about risk factors as well.
Interesting facts about the forex market
Based on the information provided by Bank for International Settlements, the daily trading volume for forex jumped to $6.6 trillion in 2019. Yes, trillions of dollars and not billions of dollars.
It is vital to learn as much as possible about the forex. Why? Because people should take into consideration various factors when it comes to the forex market. As a reminder, trading currencies can be risky and complex at the same time.
Moreover, it is important to find a trustworthy forex broker. Don’t forget to check whether the broker is regulated in the United Kingdom or the United States, or a country with less strict rules as well as oversight.
Furthermore, it also makes sense to find out what kind of account protections are available if something goes wrong.
Commercial and investment banks conduct the vast majority of the trading in forex markets on behalf of their clients. However, there are also speculative opportunities for trading currency against another currency for professional as well as individual investors.
Advantages and disadvantages of scaling
Let’s start with the advantages of scaling. As you can see, scaling in trading is quite attractive.
Thanks to scaling, you don’t have to worry about various details. For example, scaling in and out of your position removes the necessity to be ideal in your entry or exit.
It is all but impossible to foresee price action all the time.
Unfortunately, it is very hard to keep expecting to get the best entry feasible in all cases.
In the best-case scenario, it is possible to spot an “area” of prospective support/resistance. Let’s not forget about momentum change, reversal, and so on.
You have the opportunity to enter your position in bits as well as pieces around the above-mentioned areas and/or take your trade-off at various levels in order to lock in profits.
Accurately carried out with a trailing stop, scaling out of winning positions can shield their profits (traders) if the price abruptly reverses.
What about the disadvantages?
Do you know what is the major issue? The main shortcoming of scaling is when you add more to your position.
As a reminder, the main drawback of scaling is that you increase your overall risk.
Now, let’s move on to the second shortcoming of scaling. The second shortcoming of scaling is also quite important.
Importantly, when you remove portions of your position, you reduce your max potential profit.
When it comes to the forex market, it makes sense to reduce your risk and “take some off the table.”
As you can see, scaling has its advantages and disadvantages. So, it is important to take into consideration the pros and cons of scaling.