Wednesday, March 23, 2016

Stop Scale Out Method

Additionally to the Tactical Risk Management with the scale out method discussion, I thought about the possibility to scale out of a losing trade and how this would look in a potential trade scenario. So, I've added a third column to our known figure that compares a normal Scale Out Method, No Scale Out Method (All-In/All-Out) and the additionally Stop Scale Out Method.

The trade scenario: 3 Contracts, Target: 5 Points, Stop: 3 Points. The Stop Scale Method scales out of a losing trade at 1 Point, 2 Points and the final third contract at 3 Points with a static (All-Out) 5 Point profit target. One thing to make clear: This is one possible trade scenario, so preferably avoid thinking we want to trade always with a 5 Point Target and 3 Point Stop. It depends on the trade situation and the situation adjusts the risk parameters (Stop/Target) higher or lower. Anyway, here the figure with the additionally Stop Scale Method: