Scaling in Trading Strategy: Full Analysis

  By Deya Hroob

 

  My trading strategy is based on technical analysis and I show you how I trade using three scaling in strategies!

  What's Scaling in Strategy?

 

Scale in is a trading strategy that involves opening multiple units at different price levels to maximize your profits . When a trader opens a position, he waits until some circumstances to happen to add other positions to his current one. It's considered as an advanced strategy because it rises your risks if the market goes against you.

In this article, we will discuss three conditions traders should add to their current open positions. 

1. Moving Averages

In this approach, we use three different moving averages: 5-day EMA (black line), 20-day EMA (purple line) and 50-day EMA (orange line).

Let's take an example. Below is the USD/CAD daily chart.

Firstly, we opened a long position when 5-day EMA crossed above both 20-day EMA and 50-day EMA. ( We can also open long when 5 EMA crossed above 20 EMA if it's followed with a bullish candle closed above 50 EMA for confirmation).

To add more long positions, we waited the price to rebound from both 20 or 50 EMA. The more the price rebounds from the them, the more reliable our trades will be.

We placed our stop loss for fresh positions just below the 50-day EMA and trail the stops for old positions also below the 50-day
in order not to miss the profits.

Let's stay at the same chart, we will notice a strong bearish sign as 5 EMA crossed under both 20 and 50 EMA with strong bearish candle. We can initiate a selling position with confidence.

Let's take another example, we applied the same rules to the GBP/USD chart below and maximized our profits to its most. Notice how the rebounded from both 20 and 50 EMA gives us great opportunities to add more profitable positions.

Also, this is a Gold daily chart. We went long when 5 EMA crossed above 20 EMA. Then, we added more long positions when the price touched the 20-day EMA several times.

Moving Averages Trading Strategy

2. Breakout/ Break down

As you can see from the chart below, GBP/JPY has formed a descending channel. In descending channels, the upper line is considered as resistance while the lower line as support level. 

* Let me remind you of some basic technical analysis " When resistance breaks out, it considered as a bullish sign, whereas when support breaks down, it considered as a bearish sign". 

Therefore, traders should short at the upper line of the channel and take profit at the lower line.

 However, in our example below, the price plunged below the lower line ( the support), as a consequence we added more short positions. Notice how the price rebounded from the lower line of the broken channel, so we took it as a confirmation signal to add more shorts. After our trades, we easily doubled our profits.

You can take the XAU/USD chart below as another example of this method.

3. Fibonacci Retracements

Fibonacci retracement is a method of technical analysis for determining support and resistance levels. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.

In our example below, we have an earlier long position. When the price started to correct, we implemented Fibonacci retracement on the chart to determine the possible support levels.

As you can see from the chart, the 0.382 Fibonacci level provided great support. It held the pair many times. Hence, we bought more units.

Amazingly, the chart gives us another great opportunity to add more profitable units when it breaks up the previous high and
Fibonacci ratios. 0.0%.

As we discuss Scaling in strategy in this article, there is also Scaling out strategy we will go over it in future post.

Exit Strategies to Protect your Capital