Why We Scale Out of a Trade- Video and Transcript
Using stocks $CLF, $PHUN, and $DWAC from October 22, 2021, Turbo Tradings Head Trader Robert Knight, MBA explains why we scale out of a trade. A transcript is below the video.
This is a video on why we scale out trades as we go along. Just the other day, I did a video on swing trades where we actually, added to the positions as they went up. But what we really said was on pullbacks, you can add, and then on pops to the top of the channel, you scale some out along the way.
As a stock is going up, especially on the swing trades, you can add to at certain levels. But in the case of day trading, you really want to scale these out as they go along, to lock in your profit. Now, in this case, this is a $CLF and this was on our watch list from this morning [October 22, 2021].
And here was the entry, down here at $22. And then it did pop up. Maybe here's your first pullback entry operator around here at $22.65. So let's say that's where you get into the trade. And you can see that it gets into this big rising channel and you get the opportunity to draw a trend line like this, and it did break through but popped right back up. So you just have to fan out the trend line.
This is a low-risk, low-stress kind of trade. Much different than, you know, these wild trades that are going on right now at the specs. You're not going to get whipsawed out of this. You get in here at $22.65. So where are you going to run into trouble?
Well, you're going to run into natural trouble at, $23. But it stayed in this, in this big rising channel, never did break down through it. And by the, and vice versa, it never really got to the top of the channel until up here at $24. But you still want to sell a little bit because you just never know.
Let's see you sold some here, $23, a little bit at $23.50, every 50 cents. And then you have the sharp correction down. You'd think, oh man, if that keeps going, lucky thing, I sold some stock. But it holds and continues to go. And in fact, then you could have maybe added back to your position, and then as it goes, Gets the top of the channel. Again, here, you sell some out. Pulls back. Then you see here double tops, the double top there as well. So, you know, you sell some there, then you see here, it did double top and then it broke the trend line and sold off very sharply. Now, on the way up, maybe your average cost would be about the same amount as if you hold held it all the way and managed to get some out here around $23.50.
That could be the case. But if it got halted to the downside and continued to trade lower, which I'm going to show you some other ideas, you'll be very glad that you were punching it out on the way up, scaling it out. What you'll find over time is that by scaling out, you'll make way more money than if you try to hold for the top of the market. Cause you never know where that might be. And if you miss it, you could possibly trade or turn a profit into a loss. And this is exemplified by this $PHUN and here today [October 22, 2021].
This morning [October 22, 2021] we had highlighted this $PHUN in here at around $8. It did pop got halted, pop, halted. And when it popped the second time, I said, look, to sell at least half your position, 25% to 50% of your position because, after two halts you never know. So this is why you want to scale out because if you had not scaled out and thought this thing's going to run like the $DWAC to a hundred and kept your full position after the third halt, it popped double top and then sold off.
And this all happened faster than the blink of an eye. And then it halted to the downside. You know, there was, this is not really a real representation of it. I mean, it opened here. No, well, it opened here at $18.20, but in seconds it was down here at $7.80 dropping $10, popped back up a bit of retracement. So there's no chance to get off your paper because it just dropped too fast.
So if you're scaling it in this case, if you're scaling out all the way up and rather than trying to hold it all, you would have profited very nicely from this. And then the last little bit you had left, you know, maybe it ended up being a breakeven or, you know, you got a bit off popped in, you know, you ended up okay, but the bulk of your entry or your exits were in this, you know, we're scaled out on the way up.
This is the big reason why you need to scale up all the way up because you just never know. When you're going to get a hold like this. $DWAC surge this morning [October 22, 2021], don't worry about the price and gapped up. But then look at this downtrend, this got into you. There's just was no way to get out of this stock. It just, you know, very difficult to do.
Just gap down gap down. So if you're not scaling out on the way. You're turning a profit into a loss. This thing ended up down at $80 on a panic from $175. Cut in half. So that's why you want to scale out.
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