SCALE AND TRAIL
The
euro currency chart in Figure 10.3 demonstrates a nice swing trading opportunity
and how scaling out of half of your positions is a great mechanism to capture
profits while staying with a potentially longer-term trend. As you can see, the
sell signal triggers at 124.80. Immediately we see the sequence of events
develop: lower closes than opens, lower highs, lower lows, and lower closing
lows. This is what we want to see each time we place a short position in the
market. As the price declines, a hammer forms; and as you know, that generally
gives a clue that a market reversal is developing. The market does make a
higher closing high, which would give you reason to scale out of half of your
positions at 122.65. Not a bad trade, which took place over 11 trading
sessions.
The
market has not given any confirmation of a trend change; therefore, you would
want to move a stop down on the balance of the positions to just above the high
of the candle that made the last major conditional change of a lower closing
low. Trading with scaling out of the balance of half of your positions combined
with the trailing stop method we went over in Chapter 9 will help you capture
profits while participating in the majority of a trending market condition.