Been trying to get my head around scaling into positions, especially after an initial entry doesn't quite take off as planned but the overall thesis is still valid. Do most of you just use the initial entry's stop for the whole scaled position, or do you adjust it based on the average price? Feels like I'm tying myself in knots with the math sometimes.
This is something I've been wrestling with too! It seems like adjusting the stop based on the average price makes sense logically, but then your risk on the initial entry changes. How do you decide when to scale in versus just exiting the first position?
For scaling in, I tend to use the initial stop, especially if the thesis hasn't fundamentally changed. Adjusting the stop based on the average price can sometimes widen your risk unnecessarily if the initial entry was well-reasoned. What's your average number of scaling additions?
That's a great question, and it's definitely something many traders wrestle with. I personally prefer to adjust the stop based on the average price of the scaled position, as it gives a more accurate reflection of the overall risk exposure for the entire trade. However, it can also lead to larger initial losses if the trade goes against you immediately after scaling in.