How To Scale Out Your Trade

You might be having an overload of information by now, but there is still a lot more that we could learn. Day trading is not a one-time skill you could develop in just a period of time. It is continuous learning that you need to master every single day.

Before we stray away from our topic, let us discuss how we could scale out of our trade. What does it mean by the way? Scaling out of the trade means selling off portions of the total held shares while the price is increasing. To scale out means getting some of your ownership on the shares you are keeping, and exchanging them with realized profits. This kind of method actually allows the trader to take some of the profits already, secure them, and remove the mentality of “I will just sell it at its peak price.”

Scaling out is a profit-taking strategy that will help day traders reduce the risk of mistiming the market’s high or rally, and minimize the potential loss. This kind of strategy lets day traders reduce their exposures to a stock or a position when the momentum or the volatility of the market is slowing.

There are advantages and disadvantages when you will be scaling out your trades. Its advantages include being able to secure or protect your profits at an early phase and being able to gradually get out of your trading positions with minimal exposure to the risk of loss. There is also a slight chance that the trade wouldn’t go your way so this type of strategy will stop you from letting your losses run even higher.

However, scaling out would mean that it would reduce your overall profit, which is a disadvantage. Instead of selling all your positions at a target price, you are consciously setting two to three take-profit points when the stock price is going in an upward move.

An example of scaling out would be like this. A day trader holds 10 shares, priced at 10 USD each. The stock he is holding is now going in an upward move. So he sets target profit-taking points of 13 USD, 15 USD, and 17 USD. He will sell 2 shares on the first selling point of 13 USD, 2 shares again on the 15 USD, and the rest of his shares on 17 USD. While doing this, this day trader reduces himself on missing out on profits, assuming the price didn’t drop.

 

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