“I believe in this scenario very strongly — but if the price action fails to confirm my expectations, will I be hugely long? No, I’m going to be flat and buying a little bit on the dips. You have to trade at a size such that if you’re not exactly right in your timing, you won’t be blown out of your position. My approach is to build to a larger size as the market is going my way. I don’t put on a trade by saying, “My God, this is the level; the market is taking off right from here.” I am definitely a scale-in type of trader. I do the same thing getting out of positions. I don’t say, “Fine, I’ve made enough money. This is it. I’m out.” Instead, I start to lighten up as I see the fundamentals or price action changing.”
- Bill Lipschutz (via New Market Wizards)
Sometimes there really is a “market taking off” inflection point, depending on a combination of catalysts, technical levels and tipping point news events. But in other instances the Lipschutz approach — building a position incrementally, cashing out incrementally — can be a superior strategy.
Do you ever scale into your positions, e.g. put on small amounts and then add as conviction levels increase? How about on the exits? Have you ever thought about it?
(The specific mechanics of scaling in and out — which go hand in hand with pyramiding technique — are an example of what we’ll cover in great depth in the MT Driver’s Manual.)
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