Scaling into losing positions helps traders “average down” their buying price before the asset eventually goes their trades’ way.
But scaling is not for everyone.
After all, you’ll never be sure that the asset will eventually trade your way. Will you still be able to make good trading decisions if price continues to trade against you?
Fortunately, there’s a way to know when you should consider scaling into a losing position:
Just ask yourself, “Self! Is this part of my plan?”
If your answer is “Heck yeah, I knew price could hit these levels! I’m scalin’, not bailin’!” then scale away. Follow your trading plan and get that bread (or not).
But if scaling means risking more than what you initially thought you would lose, or if you’re only doing it so you’re not wrong a little longer, then you, my friend, are relying on hope.
Do you know who else relies on hope? Those who swipe right on their crushes on dating apps, Princess Leia, and gamblers.When you rely on hope, you’re turning a blind eye to the current conditions and HOPING that the market will turn back in your favor.
Hoping won’t give your trade better probabilities. More importantly, it won’t protect your account.
Instead of hoping, use your energy to reassess if it may be time to cut your losses. Take note of how you can prevent similar losses in the future and find trades that have better odds.
Remember, there will be other trading opportunities out there, but you won’t be able to take advantage of them if you blow your account trying to be right!