When a trader learns about scaling and risk averaging, he tries to practice these two capital and risk management strategies. Such a decision is reasonable, but only if he has sufficient experience and adheres to specific techniques and tactics, which we will discuss later.
Scaling can be understood as increasing the number of contracts and deals to obtain more profit. Let’s take a closer look at this strategy.How Much Do You Know About Scaling?
Scaling is a way of trading for experienced traders only. A very popular strategy for traders who make trades from a correction in a stable trend. These are very confident traders.
This method of trading is also called “pyramiding,” or building a position. It is especially popular in trading shares and bonds on the stock market. However, this technique is very difficult for an average trader.
Only qualified specialists can apply such strategies not only in the stock and bond market but also in riskier markets such as Forex.
Scaling plan from FX2 Funding – an opportunity for traders to increase trading opportunities. Traders go through several funding stages and can keep up to 85% of their profits. With this partner in trading, you can:
- earn 10%;
- withdraw your percentage of profits (up to 85%);
- FX2 increases your initial account size by 10%
Traders participating in the scaling plan can get help to clearly understand how to move forward with their trading strategy.
Problems with Business Scaling
Today’s topic will be relevant for those who already have a specific business model, their flow of customers and stable income. A simple increase in the advertising budget significantly increases the CAC (customer acquisition cost). In other words, you cannot get twice as many customers for twice the budget.
You don’t know any other way to scale other than increasing your advertising budget, which does not give the desired result. When scaling, the marketing system becomes unprofitable (negative ROMI). That is, when you already have some kind of marketing system that consistently generates a certain number of customers, when you try to double your profit, it starts working at a loss.
The most crucial thing in scaling is that the deal is profitable, and the trader has the opportunity to increase profits through pyramiding.
How does the Scaling Strategy Work?
Scaling can improve the profitability of a trading system. Averaging in the case of compliance with the rules of safety and luck helps to obtain the optimal price for exiting the investment position.
Averaging strategy is riskier than position scaling. For one reason – it is more difficult for an experienced trader to wait for the “pain” from a floating loss (averaging) than the joy from a floating profit (scaling). In the state of “pain” it is more difficult to follow the trading algorithm.
A novice trader should never join a losing trade. If the market went against the newcomer’s expectations, then the best decision would be to take a pre-calculated loss. Such an action will be much better than adding another deal or something to a position that has been stuck in the red.
Preparing to Scale
A pyramiding strategy can significantly increase your chances of making much more profit from the market. This technique will double or even triple your potential profit in just one trade. We’ve outlined the steps you need to take to scale successfully:
- It is necessary to keep statistics of transactions and profitable/lossy days/weeks/months. These statistics give insight into whether there is a systematic result that the trader shows not once but over a long period.
- If the transaction statistics are favorable for 4–6 weeks, you can start scaling and gradually increasing the contracts/lots in the transactions. Trading should not cause you discomfort: anxiety for an open position, foggy palms, and a heart rate of 200.
- If the open position is very large, traders often exit trades during minor corrections, unable to wait for a take. This may be due to the fear of receiving more damage than usual. Additional stress appears, which leads to emotional mistakes.
- If the transaction statistics are floating: today is a plus, and the next day is a minus, it is worth analyzing your transactions and trading strategy. You may need to learn new technical analysis tools that can help improve the entry point of trades, and determine the direction of price movement, or perhaps the volatility of success lies in emotional errors that must be worked with.
- Accept the fact that increasing the position in transactions will also increase the risk (potential loss). Not all traders want to tolerate this, and therefore, their scaling takes longer or is completely absent.
Remember, the size of the deposit and the volume of transactions should always be within the trader’s comfort zone. That’s why it’s so important to have a reliable partner like FX2 Funding to help you develop your scaling strategy.
What Should You Keep in Mind When Using this Strategy?
For this trading method to work as well as possible, you need to follow several rules and find the right and reliable partner for FX2 Funding.
- Use pyramiding only in the case of a strong and stable trend.
- Switch to older time frames because a price structure may be present on older time frames that are not visible on younger time frames.
- Always mark support and resistance levels.
- Follow your exit plan. Determine in advance places to set or move stop losses, as well as possible targets for taking profits.
- Get the right risk-to-reward ratio right from the start.
- Use the same lot size each time you re-enter the market.
Use pyramiding with great caution. It’s not a technique you’ll find yourself opening deals with often, and there will not be many good opportunities on the market. If you can catch just three or four pyramid deals per year, you will have a potential income of 60% to 80%. Do not forget that your risk will remain minimal.
So, when you are correct in your prediction of the price movement, you should take maximum profit from the market. If you are wrong, your losses should be small. The scaling strategy multiplies your income while maintaining the same level of risk.
