Day Trading Tips: How To Correctly Scale Out Of Your Positions

day trading

I scale in and out of my trading positions every single day. It is one of the best ways to enter and exit positions for day trading in the stock market in my opinion. Scaling out is selling partial positions of a stock you are currently in, instead of selling your whole position at once. It allows you to realize profits when you have them while keeping you in a position to capture a bigger move. You can also scale in to your positions to build up and add to a current position, allowing you to make even bigger gains when the stock goes in your favor. In this article we will focus on how to properly scale out of your positions. Here are some tips to successfully scale out of your positions:

Sell A Portion Of Your Position Into Strength

There is nothing worse than having a nice gain on a position, and then the market turns and reverses on you. Just like that a nice winner turned into a loser because you didn’t take any profits when you had them. This is the problem that scaling out of your positions solves.

One of the biggest benefits of scaling when you are day trading is it allows you to realize profits when you have them while still keeping some of your position in the stock to capture a bigger move. When you have a decent gain on a stock, it is a great idea to sell ½ ( ⅓, or whatever suits you) of your shares to realize some profit. When you are day trading, you are trading to make income. In order to make income, you need to be taking profits when you have a decent sized gain.

Once you sell some shares, you can move your stop up and ensure that no matter what, you will have a green trade.

Move Your Stop Up After Taking Partial Profits

After selling some of your shares, it is a great idea to move your stop higher up to prevent the stock from reversing and completely wiping out all of your gains. You can move your stop to your average price to make you go breakeven in the worse case scenario with the rest of your shares. Sometimes I find its better to move it to higher area of support, because there is no technical reason for a stock to respect where your entry price is. This will allow you to not unnecessarily get stopped out of the rest of your shares when there is no sign that the trend is over in the stock.   

Make Your Own Exit Strategy For Your Positions

The reality is there are so many different trail methods of a stock, you need to create your own method that is best suited to YOUR personality. Maybe you prefer to scale out in fourths, or you don’t like moving your stop up because you want to be in position to capture a bigger move. My style of scaling out may not be suited to your personality, or you may not even like scaling at all. It is fine to prefer to sell all of your shares at once. As long as you are profitable, do whatever suits you. Be sure to always have an exit strategy BEFORE you enter a stock. Prepare what you will do if the stock goes in your favor, and prepare what you will do if it goes against you. I recommend scaling to new traders because I know that the majority of new traders find it painful to watch a nice gain in a stock evaporate without having any profit realized. 

HUYA Example

Let’s look at an example of how I scaled out in a HUYA trade I took earlier this summer. Check out its intraday chart below:

day trading

When I longed HUYA for the opening range breakout, I bought 1000 shares at $24.30. I sold 400 shares at $25, as round psychological numbers can often act as resistance, and it was near a resistance level from the prior day. I then moved my stop to a break under the 9 EMA, since it had respected moving average all morning in the build up to the move. I sold another 300 shares at $25.40, leaving me with 300 shares left of my original position. I then sold the last 300 shares when it broke under the 9 EMA  at $25.14.

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