The Right Way to Scale Up in Forex Trading
05/23/2014 9:00 am EST
Traders have been debating the merits of whether to scale into a trade or not for years, and the debate will doubtless continue, but if you do decide to scale up, Yohay Elam of ForexCrunch, offers some tips on how to do it right.
You are trading for several months now, and things are going well. You win some, lose some, but the overall outcome is successful: you win more money than you lose, by using sensible risk/reward ratios and rules of money management. This is not the “beginners’ luck” sensational win. So, you feel confident with your trading and you consider scaling up, in order to make more money, at the right time. How do you do it?
There are several methods of scaling up, but some of them can be harmful.
Opening more positions at your usual trading times: By utilizing your time in a better manner, you can squeeze in more trades and potentially more profits. Perhaps you have been very careful and strict, and after gaining experience, there’s room for adding more trades. This should be done very carefully. But this has a downside as well. By opening more positions at the same time scale, you apply more pressure on yourself, and might find yourself looking for a setup, which is never there.
Extending your trading hours: Also here, if your trade hours have been very limited so far, and you have enough spare time and the capacity to handle longer trading times, you can give it a try, by increasing the trading times gradually, adding a little bit more time to your sessions. There’s a downside also here: perhaps your trading systems work better at specific trading sessions, and extending your trading hours will just extend your losses. In addition, you might find yourself too easily in the pitfall of overtrading: also here, you may find yourself imagining trades that have no chance.
Scaling up position sizes: This is the preferred method. This way, you don’t change your trading times and frequency, but just enlarge your position sizes. Assuming that your account has grown by now, the percentage of your account that is risked each time will remain limited—money management rules will still be applied. When enlarging position sizes, you may feel more pressure, so also here, a gradual increase is always preferred over a big jump.
By Yohay Elam, Founder, Writer, and Editor, ForexCrunch.com