Scaling in/out with options can be an effective method for adding or removing positions. Scaling can help adjust risk, lock in profits, and/or maximize profit potential. I have also used scaling into a position to try and salvage a trade that is going against me.
CONFESSION: Trades that are going against me are usually because I have not stuck to my trading plan and have slipped into that gray area of trading called “gut instinct trading.” Gut instinct trading is the worst trading plan available!
So, what happens when Scaling into a trade happens using gut instinct trading.
Yesterday morning my gut instinct was telling me it’s time for a pullback in the market. Contrary to sticking with my charting indicators, I bought a single 417 SPY Put for .78 cents. My first mistake was not closing it out when it became slightly profitable a few minutes later, and the market began moving back up with the position beginning to lose value. When it fell to .34 cents I scaled in and bought a second 417 Put. I now own two 417 Puts (a .78 and a .34 which has lowered the cost for two to .56 cents each. Again the market continued to move against me and the 417 Put was now down in the .20 - .25 cent range. Being stubborn I bought a third for .21 cents. Now there are three 417 Puts with a value of .443 cents each.
Finally at 1:30 p.m. the market reversed direction and an hour later I was able to close all three for .79 cents each (for a profit of $108).
So, why do I share this with you? First of all to let you know that “gut instinct trading” is poor trading , rarely works, and should be avoided even though I eventually pulled this one out.
I rarely use “scaling in” on a 0 DTE trade but have frequently used the concept for longer trades (several days until expiration) usually to increase a winning position and/or occasionally to lower the cost of an overall options cost. I will only increase positions when most of the activity shows more positive trend movement likely available prior to expiration.
My purpose for sharing this is to discourage any from “gut instinct trading.” It is far better to put individual feelings aside, develop, or find, a good chart setup (similar to my AGAIG-BestTradingChartSetup) and let market trend be the impetus for all of your trades. Gut instinct trading ultimately leads to losses although we might get an occasional streak of luck.
As an ardent cartoon lover (the part of the paper I read first) an old Dilbert Cartoon explains “gut instinct trading” the best: The pointy hair boss says to Dilbert: “People Tell Me You’re Underperforming,” Dilbert responds: “Did You HearI It From AnyoneCredible?” The pointy hair boss says: “No, But I Know It’s True Because My Gut Tells ME IT’s True” and Dilbert responds: “I’m Curious, Where Do You Stick Your Head To Listen To Your Gut?”
Bottom line: Don’t listen to your gut! It’s not reliable. Find, or develop, a good chart set up, follow it faithfully, and make sure several indicators agree with a change in direction (let the market lead). Also scaling into a position can sometimes turn out to be an effective strategy?
CONFESSION: Trades that are going against me are usually because I have not stuck to my trading plan and have slipped into that gray area of trading called “gut instinct trading.” Gut instinct trading is the worst trading plan available!
So, what happens when Scaling into a trade happens using gut instinct trading.
Yesterday morning my gut instinct was telling me it’s time for a pullback in the market. Contrary to sticking with my charting indicators, I bought a single 417 SPY Put for .78 cents. My first mistake was not closing it out when it became slightly profitable a few minutes later, and the market began moving back up with the position beginning to lose value. When it fell to .34 cents I scaled in and bought a second 417 Put. I now own two 417 Puts (a .78 and a .34 which has lowered the cost for two to .56 cents each. Again the market continued to move against me and the 417 Put was now down in the .20 - .25 cent range. Being stubborn I bought a third for .21 cents. Now there are three 417 Puts with a value of .443 cents each.
Finally at 1:30 p.m. the market reversed direction and an hour later I was able to close all three for .79 cents each (for a profit of $108).
So, why do I share this with you? First of all to let you know that “gut instinct trading” is poor trading , rarely works, and should be avoided even though I eventually pulled this one out.
I rarely use “scaling in” on a 0 DTE trade but have frequently used the concept for longer trades (several days until expiration) usually to increase a winning position and/or occasionally to lower the cost of an overall options cost. I will only increase positions when most of the activity shows more positive trend movement likely available prior to expiration.
My purpose for sharing this is to discourage any from “gut instinct trading.” It is far better to put individual feelings aside, develop, or find, a good chart setup (similar to my AGAIG-BestTradingChartSetup) and let market trend be the impetus for all of your trades. Gut instinct trading ultimately leads to losses although we might get an occasional streak of luck.
As an ardent cartoon lover (the part of the paper I read first) an old Dilbert Cartoon explains “gut instinct trading” the best: The pointy hair boss says to Dilbert: “People Tell Me You’re Underperforming,” Dilbert responds: “Did You HearI It From AnyoneCredible?” The pointy hair boss says: “No, But I Know It’s True Because My Gut Tells ME IT’s True” and Dilbert responds: “I’m Curious, Where Do You Stick Your Head To Listen To Your Gut?”
Bottom line: Don’t listen to your gut! It’s not reliable. Find, or develop, a good chart set up, follow it faithfully, and make sure several indicators agree with a change in direction (let the market lead). Also scaling into a position can sometimes turn out to be an effective strategy?
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