“Scale IN when buying, Scale OUT when selling”
What do I mean by scaling in and scaling out? Again, simple. Scaling refers to placing only PART of your dollar amount on a share at a given price. NEVER the whole amount that you plan to invest on that share. Here’s an example:
Let’s say you are looking to buy stock XYZ. You’ve figured out that $.50 is the bottom of what has become a solid base for the share and now you’re wanting to scale in on the trade. Perhaps the price is currently $.55…. Now lets say you were going to invest $1,000 in XYZ… HOW DO YOU SCALE IN???? Here’s what I simply do:
First, you break your investment into parts. In this case we’ll break it in into two parts. So, 2 parts of $500 each. Then, you place an order for as many shares as you can purchase with ONE OF THOSE PARTS for $.55 . THEN, lets say the price drops a little to $.50. You then place the 2nd half of the investment for the rest of the shares you are buying at the price of $.50 . BOOM! You’ve just “Scaled In”. And you now have and AVERAGE share price of $.525.
NOW COMES THE TOUGH PART!!!!!!
Now lets say you decided IN ADVANCE that you were shooting for a 5% to 15% profit on this particular trade….. As you watch the trade progress you see the share move up to $.56. That is a 6.6% increase over your share average of $.525!!!
Immediately you want to lock in that gain so you SELL ½ of your shares at $.525 and lock in that gain…. Next, let’s say the stock climbs even further up to $.60. That is now a 14.28% increase over your share average of $.525. Therefore you SELL the remaining ½ of your shares at $.60… BOOM! You have just “Scaled Out” of the trade!
Now you may be thinking, “That’s not much profit!” But let’s do a little math before you get all greedy on yourself!!! That’s a net profit of roughly $105 on an investment of ONLY $1000…. If you manage to do that only 2 times per week for a year, that is a total profit of $10,920!!!!
$10,920 from a $1,000 Investment
And just to be more realistic, let’s say you blow some of those trades for calculated losses and lose out on say $3,000… You’re still UP ALMOST 8 GRAND!!! And don’t forget, it’s scalable… If your initial investment in a play was 10 times that, then you’re talking $80,000 in a year!!
