Original Question: By the time you undergo all your scale outs in a winning play and you “bullet proof” your hold in the set up as you like to say, how much of the principle buy-in size is the position trade typical worth for you? I find myself scaling out aggressively and not having enough ammunitions left in my position trades to make it worth while. This has happened with multiples names like LMND, PINS, NIO. I am typically left with a quarter of the buy in for swings that turn into position trades. By having a quarter size, I am able to absorb shakeouts but some of the set ups in the past year were high octane and made their swings without any severe shakeouts and I found myself undersized for the ride.
This is a very good question! There are no hard rules for this and you must not try to get hard values from me for reasons I am about to explain.
The amount you scale-out must be enough so that your trades don’t trigger the base profit lock-in (2.6R rule) all the time. The basic idea of the scale-outs is twofold… First you want to secure some profits when stocks go crazy and pop 10% or more intraday, second you want to be in a position to let a trade turn into a longer term position trade without being shaken out when the crowd joins in the causes the usual shakeouts. Recall that most of my entries are early inside of a base!
It is also very important that you refill your position back up to your regular position size once you are provided with another proper setup along the way! That’s the idea of my system which is explained in great detail in my comprehensive money management article.
Now back to your question of how much should YOU scale-out and keep for the ride.
If you feel that you are undersized then you scaled-out too much, simple as that! All those thresholds I use suit me perfectly and allow me to trade with great ease without triggering any emotions. Even my wins usually don’t trigger excitement anymore. Whenever an emotions comes up I act and make sure the get rid of it asap. I don’t care if I lose profits that way. For me, it’s about denying the market any opportunity to evoke emotions in me!
When a stock goes nuts and pops 10% on an almost daily basis I scale-out aggressively and sometimes I am left with only 1/8th of my initial position after a week or two. This means the price and volume action of the stock naturally turned the trade into a pure swing trade. Most of the time I simply keep the remaining size as a core in order to force myself to follow up on the name at a later time. This is the core principle of my hybrid Swing and Position trading approach.
Normal strong multi day moves often leave me with 2/3 to of my regular position size. But I sometimes double my regular position size intraday on QTS setups with the idea to catch the initial pop with a larger size. This requires active intraday trading in order to manage risk.
Rule of thumb is to scale-out 1/4 to 1/3 when a stock is up roughly 3R or when it shows a double digit percentage pop right out of the gate.
Again, the idea is to fill up your position back to normal when another proper setup shows up. Don’t expect me to always point this out in active trades where we found an earlier entry.
Pulling this off in real time requires practice so that you can adjust the thresholds to better suit your own risk allowance (to avoid emotions). I am an active full time stock trader and I don’t sell or provide a streamlined product. I simply share what I do but try to formulate some concepts into easier to follow rules whenever possible.
Just get familiar with this concept and trade it. Once you accumulated some experience tweak it to suit your needs. In any case I strongly urge you to act around strong PLLs.
More power to you!