Scaling into our out of a position is a very common practice, but is it really improving the quality of your trading? Counter-intuitively, most traders do not improve their trading performance by scaling into or out of a position. Quite the opposite – most traders even worsen their performance. But why is that? Although scaling into or out of a position is done with good intentions, the execution is typically less than ideal.
Knowing that traders struggle with the right execution of multiple entries and exits, Edgewonk accounts for this common problem and we show you how the Edgewonk trading journal can help you unveil weaknesses in your trading.
Scaling into a profitable trade
Why you do it? The idea behind scaling into a trade is to “get your feet wet” by entering a partial position and once the trade moves into your favor, you add to it. Although this sounds good in theory, what really happens is often very different.
What really happens? Often, the initial position is too small because traders fear that they could lose money. Once the trade moves into profits, they lose their fear and add to a trade. However, after adding to a position, even a small retracement can wipe out the overall profits on your trade much faster.
Furthermore, the stop of that second position often has to go much further away and, therefore, reduces the reward:risk ratio of the overall trade. While adding to an already profitable trade can be a great way of building a larger position, if it is done for the wrong reasons and without considerations, it can ruin a good trading method.
Scaling into a losing trade
Although some traders will argue otherwise, adding to a loss should almost always be avoided. The argument that “I can get out faster when price turns” is often the last words of a trader before his trading account is wiped out.
Scaling out of profitable trades
Scaling out of a winning trade is also mostly done for the wrong reasons. Exiting a portion of your trade to “secure profits” sounds very good, but it is not. If you expect a reversal, you better exit your whole position and don’t gamble with the part of your trade you don’t want to exit. And if you don’t see any reasons why your trade could turn on you, you should leave the full position open to maximize your profits.
Scaling out of a losing trade
Unfortunately, most traders do not scale out of losers often enough, although this technique can often turn a trader into a consistently winning one. Traders don’t even take this option into consideration and freeze when price moves against them. However, exiting a portion of your trade means that you are reducing the risk as conditions worsen.
You don’t have to sit there and wait until price runs into your stop loss. Exiting some, or even all of your position ahead of the stop loss can make a big difference in a trader’s performance.
Edgewonk’s analytic approach
Taking out the guesswork
What we have said so far just describes what traders usually do and think, but it is important to validate those claims and analyze how it plays out in your actual trading.
If scaling into or out of positions is a big part of your trading, we encourage you to dedicate one Custom Statistic to tracking multiple entries and exits (examples see below). Later you can then separately analyze statistics for risk and position size, reward:risk ratio, R-multiple, expectancy numbers, emotional influences, etc. for multiple entries and exits.
Examples for Custom Statistics:
| Extensive approach | Basic approach |
| No scaling | No scaling |
| 1st entry, 1st exit | Good scaling |
| 1st entry, end exit | Emotional scaling |
| 2nd entry, 1st exit | … |
| 2nd entry, 2nd exit | |
| 3nd entry, 3rd exit | |
| …. |
How to analyze your trades afterwards
The Edgewonk approach of using a separate row for multiple entries/exits sometimes worries our users because they believe that it skews their performance data by separately looking at the individual entries/exits. Don’t worry, we accounted for that.
Further reading: How to enter a trade with multiple positions
Fist, after you have set up your Custom Statistic as suggested, you can use those filters to separately analyze different types of trades. For example, the filter “No scaling” then only shows you the trades where your trade only consisted of one position. The filter “1st entry, 1st exit” only gives you the performance data for that first part of your trade. You can also combine different filters to see how your performance metrics change.
What to look for in your data
Now that you know how to track your trades and how to use the Custom Statistics, you can take a closer look at your performance data. There are 5 specific metrics we suggest consulting when you are unsure about the effectiveness of multiple entries and exits.
1 – Performance table: “Avg. Gain / Avg. Loss”
The “Avg. Gain/ Loss” column shows you immediately how you perform on different types of trades. A negative value on your second or third entries and exits immediately shows you that there is something wrong with your approach – especially if the first entry/exit or your trades without multiple positions have a positive performance.
Tip: Apply filters for Winners/Losers on your trades with multiple entries. It immediately shows you if you have a psychological problem. Do you add to losses or do you scale out of your winners too soon? The performance tables will show it.
2 – Performance table: “Avg. Risk (%)”
The “Avg. Risk(%)” is a proxy for your position size and it calculates the risk and the largest potential loss on your trades. Often, traders increase the risk on later entries by setting the stop too far away and then let their losses get out of hand.
Tip: Besides analyzing winners/losers separately, also use some of the other filters for entry, exit and trade management. See how your performance metrics change for positive and negative comments.
3 – Simulator
The Simulator provides insights into potential problems with your trading. A simulated account development with a lot of swings and many huge drawdowns shows that your trading method is potentially very risky.
Try to see how the simulated equity graph changes when you apply different filters for your multiple entries and exits. Is the account growth faster and steadier if you leave out the additional entries/exits?
4 – Trade Management
The Trade Management graph analyzes your potential performance. When the green graph is above the red one, it shows that your potential performance is higher than your actual performance and that your trade management is costing you money.
Again, play around with all different filters and combine them to analyze different aspects of your trading separately. Once you find outliers and negative performance parts, either consult the other Edgewonk metrics to improve your trading, or avoid those trades to increase your performance.