When you are looking to increase your profits from a single trade you may want to use scaling in forex strategies. However, when you use these forex strategies you have to consider whether you are simply adding to the loss. When the price moves against your trade you may consider scaling in to make a profit. When you do this you are waiting for the market to turn back so you can make a profit. However, the reasoning behind this trade could now be emotional and this is not a good type of trade. You have to consider if what you are doing is really scaling in or just adding to your losses and revenge trading.
Using the Scaling in Forex Strategies
Before you can consider if you are adding to your losses you have to know what scaling in forex strategies are. Scaling in uses a scale order which includes a number of limit orders that incrementally decrease or increase the prices. If you are working with a buy order then the limit orders are going to decrease the price. If you are working with a sell order then the limit order increases the price. This allows the trader to take further advantage of the prices and make a greater profit. This strategy works well when you have a winning trade, but it can cause a margin order if you attempt to use it on a losing trade.
Are You Going to Add to Your Losses?
The turning point of scaling in to adding to your losses is very fine and you need to know this. If you use the scaling in strategy on a losing trade then you are adding to your losses. While the identification of this error is easy stopping yourself from doing it may not be. This is where trader discipline is needed as adding to your loss is a form of revenge trading where you try to make the money you have lost back.
Some new traders may see other more experienced traders talking about scaling in and making a profit on a losing trade. This is a form of the scaling in strategy but has to be very carefully done. There is also a large risk involved with this strategy that new traders should stay away from.
Understanding the Entry and Exit Points
It is important that you have very clear entry and exit points when you open your position. When these points are reached you need to stick to them. This is the only foolproof way that you could avoid adding to your losses. Of course, if you are using the scaling in strategy then you should also have clear entry and exit points. All scaling strategies do have an ultimate stop point that the trader sticks to.
Scaling is a popular strategy used by traders who are buying into the retracement of the broad currency trend and they are unsure how deep the trough will be. These traders will scale down the position to get the best average price possible. The difference between this and adding to the loss is that these traders do have a clear stop point. Traders adding to the loss do not have a clear stop point and often only stop when a margin call is placed on their account.