An introduction to Scaling In

It’s time to cast our eyes over some strategies for scaling into a position, a common FX trading technique.

We’re going to focus on using this strategy with Pin Bars. A Pin Bar is formed around a rejection of a certain level or price point, and so gives trader the opportunity to scale into the position.

There are two main scaling in techniques when dealing with Pin Bars. We’re going to look at the advantages of both strategies and how you can make them work for you.

But first of all…

Why use Scaling In?

The main advantage of using a scaling technique is that it enables you to get a better price on a position without risking the chance of not taking the trade.

For example, you might short at a known resistance point and add to the position if the price breaks within 10 pips above. This allows you to get a better price than the actual resistance line for your trade, but if the price doesn’t reach that point, you’re still in the short.

Let’s move on to the best strategies for scaling in.

Strategy One: Daily Pin Bars

How do I do it?:
First of all, you need to set up a Pin Bar that fits your trading strategy and trading rules.

Then, open an initial position at the close of the Pin Bar (typically, 1/2 or 1/3 of your total position size).

You then need to place a second order entry halfway up the Pin Bar. The diagram below shows these two positions on your Pin Bar.

Scaling1

Why is it useful?:
Using this strategy gives you flexibility: it allows you to ensure you are capturing the potential trade, while enabling you to see how price plays out the next day to see if you want to continue with the trade.

This minimizes risk as it allows you to cancel the second order if the trade starts to go against you. This will effectively halve your risk exposure. If the price then reverses and goes in the direction of your trade, you won’t be losing out; you can simply add a sell stop order below the candle to ensure you are still in a full sized position.

This flexibility and ability to minimize risk may allow you to increase your overall profitability.

Strategy Two: Sustained Trends

You can also scale into trade during a sustained trend to let your position run for as long as possible in order to maximize profit.

The diagram below shows an example of this strategy:

Scaling2

As you can see, there is a sustained downward trend in this example, while price is testing upper resistance and creating Pin Bars on a daily basis.

How do I do it?:
The first step is to use the second Pin Bar to scale into your current open position, without modifying your initial profit target from the first Pin bar.

At the left most Candle above, you will place two orders, and on one of them, you need to put a profit target at Target 1.

Then you will get your second entry signals short, so take this trade with two orders at Entry 1 and 2, which both get filled.

You should now have an open position of size 4 with a profit target just below this Candle for position one. The next step is to move your stops down to the second Candle’s stop level. This will form a third Candle, creating another entry signal.

By the time this third Candle has formed, your initial profit target will have been hit, booking some profit, but you will still have three open positions.

Now, add to these three positions with two more orders, and move your total stops down to the third Candle’s stop. You will notice that Target 1 is in this candle, so instead of adding two positions, simply add one at Entry 2.

You should now have four open positions. By scaling along the trend, you will find that your average position price is now close to your stop loss, minimizing actual risk on this continuing trend.

Why is it useful?:
As we saw above, the main advantage of this strategy is that it minimizes risk. Even if the sustained trend completely reverses, this strategy enables you to book profit on previous positions to ensure that the overall trade is still profitable.

By adding more positions, you can lock in profit as you go, while also building a risk-free position.

When used well, this strategy can help you book large profits.

Take a look at some of our other Pin Bar strategies below

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