Many traders rely on a simple plan when entering the market: Buy at a good price and sell when they hit their target. Easier said than done!
What happens when the market fluctuates? After all, prices are notorious for spiking too quickly or dipping before reversing.
Fortunately, there’s a strategy for that. Scale trading helps traders manage risk and maximize profits by entering and exiting trades in stages. Professional traders worldwide use this approach to refine their strategy and avoid emotional decision-making.
For traders at Falcon Funded, understanding how to scale trades properly can mean the difference between long-term success and unnecessary losses. If that sounds promising, this quick but comprehensive guide covers everything you need to know to try your hand at scale trading.
What Is Scale Trading?
Scale trading is a technique in which traders gradually enter or exit a position instead of making one significant move. It’s an efficient way to manage risk and maximize gains over time.
There are two main types of scale trading:
- Scaling in: entering a trade in smaller increments to obtain a better average entry price.
- Scaling out: exiting a trade in portions to lock in profits while keeping some exposure to potential further gains.
While traders rely on different strategies and models to determine their actions, scale trading is often used across several types of trading to adapt to changing market conditions.
Why Do Traders Use Scale Trading?
Traders use scale trading for various reasons. However, as mentioned above, the core benefits remain consistent: better risk management, greater profit potential, and increased flexibility.
Better Risk Management
One of the most significant advantages of scale trading is that it shields traders from market volatility. Instead of making one large buy or sell order, traders can adjust their positions over time. This gradual approach helps smooth out unpredictable price movements and protects against sudden downturns.
Greater Profit Potential
As much as we would love them to, markets rarely move in a straight line. By scaling out, traders can secure profits at different price levels instead of waiting to exit at the perfect point (which rarely exists). This approach allows traders to save at least a portion of their profits, even if the market reverses unexpectedly.
For example, if a trader expects a stock to rise from $50 to $60, they might sell 25% of their position at $55, another 25% at $58, and the remaining 50% at $60. This way, the trader makes some early gains without exiting completely, allowing a portion of the trade to continue growing.
Increased Flexibility
Market conditions are notorious for switching up, and scaling strategies give traders room to adapt. From adjusting to sudden volatility to confirming trends before committing more capital, scaling helps traders establish a more precise decision-making process.
Scaling In: How to Enter a Position Strategically
Scaling in is the process of gradually opening a position instead of buying all at once. This strategy is ideal when you believe an asset has strong potential but don’t want to commit significant capital upfront.
Example of Scaling In:
You want to buy gold at $1,800 per ounce but believe it may dip further before rising. Instead of cashing in straight away, you can:
- Buy 30% of your intended position at $1,800
- Buy another 40% if the price drops to $1,780
- Buy the remaining 30% at $1,760
Scaling Out: How to Lock in Profits and Manage Risk
In contrast, scaling out involves closing a position in stages rather than selling everything at once. You may want to use this approach if you sense a market is slowing down, even if it’s currently trending.
Example of Scaling Out:
You buy 500 shares of a stock at $100, expecting it to rise. As the price moves up, you can scale out like this:
- Sell 200 shares at $110 to lock in some profit
- Sell another 200 shares at $115 if the trend continues
- Hold the last 100 shares in case the price reaches $120 {or shows signs of a reversal)
Falcon Funded’s Commitment to Supporting Scale Trading
At Falcon Funded, we’re huge supporters of strategic trading. Scale trading aligns perfectly with our approach to risk management and capital growth, allowing us to support traders who want to add this technique to their trading toolbox.
Here’s how we show our support:
- We have zero restrictions on scaling strategies, allowing traders to scale in and out as required.
- We provide flexible leverage up to 1:100, allowing traders to adjust position sizes without risking too much capital.
- We offer fast payouts and high-profit shares: traders can access their earnings quickly with up to 90% profit splits and biweekly payouts.
Final Thoughts
Trading can be volatile, and scale trading is an excellent way to manage risk while maximizing profits. By gradually entering and exiting, traders can secure their capital without compromising earning potential.
Ready to get started on your trading journey? Falcon Funded provides traders with access to capital, allowing them to scale their trading careers while keeping earnings in check.
With biweekly payouts and a transparent profit-sharing model, Falcon Funded means that successful scale traders keep more of their profits. Get started with Falcon Funded today to get the most out of your trades without putting your own money on the line.
