Scaling In

Hi All

This is a post from Group27_Lee which I feel requires it's own thread.

Group27_Lee said:

Hi,

First real post here. I didn't know where to put it, but as this seems the right thread to ask basic stuff, I thought I'd put it here. Feel free to ask me to move it to another thread!

I recently caught the FTSE rising from the 4700ish level twice in the last couple of weeks. I took the first as a day trade and exited quick, mainly on gut feel and I'm still with the other trade now, for a gain of about 80 points, but I need to know where to get regular opportunities from.

My question is regarding money mangement, and making the most out of good trades. I understand about stop losses but wondered how to maximise the scaling in when on a winner. I spread bet and with Finspreads they allow you to put in both "buy at this level" and "sell here, if you've bought it" orders. With this in mind, how feasible is it to increase your stake every time a spread is covered?

For example, using my current trade, I am making £80 odd, but I am sure I could have made more. Spread is 6 points. I would like to set up orders to increase my stake every time my spread (6pts) is exceeded. This way I am increasing the stake as it rises, but only ever risking my initial move (6pts or stoploss) while I can retain my "proper" stoploss as well.

For example, again (bear with me!) I buy FTSE at £1/pt. It moves up 6 pts. My auto order is executed and buy another FTSE @£1, and again when it reaches 6 more pts. It peaks, for eg, at 60 and my TA stop loss is 50, where I exit. Instead of making 50pts * £1 = £50, I make ((50pts*£1)+44+38+32+26+20+14+8+2) £234 from the same trade. The profit of the covering the spread is always rolled on to fund the next buy. This way I only lose £1/point if the trade goes against me, rather than, say, £5+. Small loss vs large gain. If FTSE dips on the day, my auto sells take me out of danger as well.

Have I overlooked anything obvious, or would this work, as an EOD strategy?

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Hi Group27_Lee

This is something that I have seen work very successfully, although I have a couple of reservations about it:

At the end of the trade (using the above example), you would end up with a trade worth £8 a point, which if you are just starting out or finding your feet, can be a great deal indeed
The problem with making this an EOD strategy is that if the market gaps in the morning, which it does more often than not. This means your stop will be of little use. If the market jumps over the stop price, then Finspreads (or any other broker) will get you out as early as possible, and not necessarily at the best price. This can cause all sorts of problems
Also, you have to make sure you don't average down, which is buying at a lower price once you've already brought - this is dangerous because there is usually a reason when the market fell in the first place and you'll only be compounding your problem IMHO

Very interesting post, Lee. I'm shocked. Not by what you're proposing but by your 6-point spread. Aren't there laws about this sort of thing?

It's obviously a _complete_ side-track from the interesting question you raise, but I wondered if you knew that by switching from Finspreads to Capital Spreads you could cut that spread down from 6 points to 2 and get much better customer service as well? (You'd need to have quicker reactions to add to your position each time you'd cover the spread, mind you, but that's a different matter!).

Hi Group27_lee,
A common pattern when scaling in is to put on more in an logical area of support or resistance that will allow you a tight stop. - This may have nothing to do with how long ago you covered your spread. For instance, if your position is long and the instrument is trending, then the best place to put on more is when the price has retraced to the trendline. Your stoploss on that part of the trade goes just below your entry. 'just below' being a matter of some subjectivity - large enough to cover the wobble inherent in the instrument you are trading, tight enough that your not looking at a loss of more than 1-2% of your total stake if the price moves against you.

Are you trading successfully with single units? If not, the business of scaling in may be an advanced technique that you look into later in your trading career.
JO

Thanks for everyones input. Wish I'd come across this site earlier.

FTSE Beater.
"£8/point". Shouldn't be a problem - after all if price goes down, my auto sell should take it down to 7/6/5/etc point. I may peak at £8/point, but when my natural stoploss is hit I should be at, eg, £6 point.

With guaranteed stops, although something I'll have to look into, I think this will deal with gapping, especially if I place my buy orders the night before. I think you pay a little more spread, but as this is a "bonus" trade and you should be going the right way anyway, this is irritating but a failsafe.

Roberto.
6 points was for Jan FTSE. I'm guessing 2pts is the daily FTSE with CS? Definitely worth remembering when I reach the giddy heights of day trading. Do CS do guaranteed stop losses? Thanks for suggestion. I'll check out their spreads against Fins.

JumpOff
Thanks for that twist. Add more at natuaral support level. I'll have to look back and see which method gets best returns.


Thanks again to all. As a newbie, all feedback appreciated.
Lee

Group27_Lee,

I am still a novice but your strategy sounds interesting. Can not offer any comments or guidance.

By the way CMC(Deal4Free) also offer 2 point spread and you can trade with them 24/5 if u wanted to. Capital Spreads have had to reduce their spread to match CMC.

Roberto
Haing read your posts elewhere (always interesting and informative) I have one question - do you work for Capital Spreads? Always your posts are quite partila to Capital Spreads.
No offence intended and trust u won't take an offence.

gullible said:

Roberto Haing read your posts elewhere (always interesting and informative) I have one question - do you work for Capital Spreads? Always your posts are quite partila to Capital Spreads. No offence intended and trust u won't take an offence.

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Thanks ... no offence at all, of course.

Fair question, I'm sure.

No, I have absolutely no connection whatsoever with Capital Spreads other than being a satisfied customer.

To be fair, though, much though I like to enthuse about spread-betting because I know it's _very_ widely misunderstood even in the trading community, being a "satisfied customer" of a spread-betting firm is an important achievement in a sense, because if you're going to be able to trade for a living (and not pay any tax on it) you _have_ to be able to trust completely the spread-betting firm you're doing business with, and there are also one or two very bad firms around, IMHO.

I can understand your question, though, as I take your point entirely that I do have a tendency to "proselytise" a bit about CapSpreads, but my feeling is that it's thanks to people like them coming into the market and combining tight spreads and reliable execution with first-class customer service that the whole industry's now gradually changing and improving, and they should be recognised for being standard setters a lot more than they are (in exactly the same way, for example, that some private medical facilities do the NHS and all the patients a great favour in the long run).

I complain about them too, sometimes, as when I whinge that their opening hours are worse than IG's and how inconvenient that is.

Also, bear in mind that we all speak from our own experience (apart from those few who speak with none, I mean), so I mention them more than I mention anyone else because I deal with them more than I deal with anyone else. I say pretty nice things about ProRealTime and BetOnMarkets as well, and I say pretty rude things about eSignal and Finspreads and FXCM (even though I sometimes still choose to use FXCM because nobody else I have an account with handles a particular product and is open!).

(Was that reply long-winded enough for you? )

Hello Roberto,

Thankyou for a comprehemsive reply, no it was not long winded.
WIshing you a happy New Year and good trading.

Gullible