A trader\'s money management system

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c08 JWBK182-McDowell April 25, 2008 16:4 Printer: Yet to come

Scaling Out and Scaling In 67

FIGURE 8.1 Scaling Out of a Trend to Lock in Profit When My System Tells Me

There Is A High Probability That The Trend Is Nearing Exhaustion.

Source: eSignal.www.eSignal.com

I use to scale out of first 30 percent of this position. A bearishARTrever-

sal appears, and I take the second 30 percent off the table. The remaining

40 percent of my position stays on until price activity triggers the stop exit.

Figures 8.1 and 8.2 give you an idea of how scaling out can be like an

insurance policy to lock in profit. It’s a terrific technique that can be used in

a variety of ways, and you can test your own approach to see what works

best for you.

TWO WAYS TO INCREASE YOUR

TRADE SIZE AND MAINTAIN

SOLID RISK CONTROL

Given that you need to have a large enough trade size to warrant scal-

ing out, it is clear that trading only one contract would not enable you to

scale out. You need to have at least three contracts to use this technique