Risks involved in Scaling

Risks of Scaling Trades in Forex occur as you increase the overall exposure of your account to risk while Scaling In.

More so, Scaling out may reduce your losses but you earn less since you cut trade size.

Despite advantages of this technique, doing it has some risks too.

What are the risks of scaling trades in forex

Scaling in

When scaling in is not properly managed, it can increase the overall exposure of your account to risk.

A sudden price reversal can wipe out your whole risked money or account if you have not used stop loss orders or followed your trading plan.

This is so devastating to traders.

Adding more positions on a single currency pair is more risky because it can lead to a big loss in case a trade goes against you.

Traders tend to gain more confidence as the trend accelerates more to their predicted direction which makes them develop greed for more.

They then end up risking more money than planned risk per trade.

This may lead to a big draw down in case a trade goes against your positions and hence lose of more money from the account.

Due to unpredictability of the market, it is not always safe to hold more positions with one pair if not keen on risk management.

Even if the trend is in your favor. Anything can happen and it reverses against your direction which may cause a big loss to your account.

As you enter a position remember the trend is developing. When you take more positions, to a trend that has already been established, you expose yourself to more risk.

This is because anytime the trend is nearing an end and so a probable reversal is expected.

Scaling out

Scaling out on trades, reduces your overall profit. You would win more, if your entire position benefited from the full duration of the trend move, not just a fraction of it.

This means, when you remove portions of your open position, you reduce your maximum potential profit.

In addition, scaling requires a lot of time to spend in the market monitoring open positions. This takes a lot of patience and discipline to do.

Let’s now look at some of the rules to protect you from these risks of scaling trades in forex

Rules for scaling

First, your trading plan is very important to consider when scaling.

1. Do not trade outside your trading plan.
2. Never add/increase your risk per trade. Use your planned risk per trade but in portions.
3. Decide how many positions you will have on the entire trade before taking the first position. Then split total risk among the number of positions
4. On your trading set up,choose when and where your entry, stop loss and take profit will be for all positions.
5. Your trailing stop should be consistent.
6. Last but not least, calculates your position size for each position of trade