Scale In

Scale In

Scaling in is a trading strategy that involves buying shares as the price decreases. With scaling in, an investor sets a target price, then buys at different intervals as the price drops; the investor stops buying once the price reverses course, or once the trade size has been reached. However, when an investor can start off their trade with smaller trade sizes and only add to a trade when it's winning, they are able to start off the trade by risking a little and end the trade with potential for a greater return. With scaling out, an investor partially closes out a trade a little at a time as the price rises, taking some profits, while also letting some of the shares benefit from the higher price. Not only does scaling in enhance the profit potential, but it also reduces risk by starting with a smaller trade, only adding to the trade after it's profitable. Scaling out of a trade is a similar idea to scaling in, but in reverse.

Scaling refers to the trading strategy of buying multiple orders at different prices so as to limit the impact of putting in one big order.

What Is a Scale In?

Scaling in is a trading strategy that involves buying shares as the price decreases. To scale in (or scaling in) means to set a target price and then invest in volumes as the stock falls below that price. This buying continues until the price stops falling or the intended trade size is reached.

Scaling in will, ideally, lower the average purchase price, as the trader is paying less each time the price drops. If the stock does not come back to the target price, however, the investor ends up purchasing a losing stock.

Scaling refers to the trading strategy of buying multiple orders at different prices so as to limit the impact of putting in one big order.
With scaling in, an investor sets a target price, then buys at different intervals as the price drops; the investor stops buying once the price reverses course, or once the trade size has been reached.
With scaling out, an investor partially closes out a trade a little at a time as the price rises, taking some profits, while also letting some of the shares benefit from the higher price.
With scaling in, a trader can hide big moves by making them piece by piece, and can also benefit from a trade that starts to go in their favor by slowly increasing their position.

Understanding a Scale In

A scale in strategy gives an investor the option of buying additional stock as the price drops. An investor using this strategy assumes that the decline in price is temporary and the stock will ultimately rebound, making the lower price a relative bargain.

For example, if a stock is worth $20 and an investor wants 1,000 shares, they can scale in, rather than purchasing all the shares at once. When the price reaches $20, the investor could buy 250 shares right away, then 250 shares at $19.90, 250 at $19.80, and 250 at $19.70. If the stock price stops falling, the investor would stop scaling in. The average purchase price would then be $19.85, rather than $20.

Investors need to consider the fees and other charges associated with multiple trades versus one larger trade when considering scaling as a strategy.

Advantages of Scaling In

Profitable traders use scaling in to a position for a variety of reasons. Some of the more advanced thinking postulates it's a good idea in order to reduce the amount of slippage received when opening a large trade or to hide a large position that you don't want others to know about. The most important and common reason why traders scale in to a trade is to amplify their gains on a trade that has already begun to look like a promising move.

When a trade moves in an investor's favor, larger trade sizes result in larger profits. However, when an investor can start off their trade with smaller trade sizes and only add to a trade when it's winning, they are able to start off the trade by risking a little and end the trade with potential for a greater return. Not only does scaling in enhance the profit potential, but it also reduces risk by starting with a smaller trade, only adding to the trade after it's profitable.

Scale In vs. Scale Out

Scaling out of a trade is a similar idea to scaling in, but in reverse. Rather than closing out an entire position once a target price is reached, an investor will partially close the trade in increments, allowing the rest of the shares to ride the stock's move further into profitable territory. This strategy captures a profit while leaving the door open for additional gains. It is also common to move your stop loss to break even or beyond when an initial profit target is hit. That way, the remaining position you have open is almost "risk-free."

Related terms:

Above the Market

"Above the market" refers to an order to buy or sell at a price higher than the current market price. read more

Behavioral Finance

Behavioral finance is an area of study that proposes psychology-based theories to explain market outcomes and anomalies. read more

Exit Point

An exit point is the price at which a trader closes their long or short position to realize a profit or loss. Exit points are typically based on strategies. read more

Investor

Any person who commits capital with the expectation of financial returns is an investor. A wide variety of investment vehicles exist including (but not limited to) stocks, bonds, commodities, mutual funds, exchange-traded funds, options, futures, foreign exchange, gold, silver, and real estate. read more

Open Trade Equity (OTE)

Open Trade Equity (OTE) is the net of unrealized gain or loss on open contract positions. read more

Position

A position is the amount of a security, commodity, or currency that is owned, or sold short, by an individual, dealer, institution, or other entity.  read more

Purchase Price

The purchase price is what an investor pays for a security. It is the main component in calculating the returns achieved by the investor.  read more

Scale Out

Scaling out is the process of selling portions of the total held shares while the price increases. read more

Scale Order

A scale order is a type of order that comprises several limit orders at incrementally increasing or decreasing prices. read more

Seller

A seller is any individual or entity, who exchanges a good or service in return for payment. In the options market, a seller is also called a writer. read more