Scaling In and Out
I had a pretty interesting investing day today. Learned 2 lessons:
Lesson 1. Measure seven times, cut once.
It’s very easy to make mistakes buying/selling stocks online. One push of a button – and you’re buying, instead of selling. Or buying at market price instead of setting the limit.
I felt pretty stupid today when meaning to put in a sell order, I instead bought an additional 500 shares. I got really lucky, actually with the whole deal, and here’s why…
Lesson 2. Scaling in is good and can help increase profits.
Position traders may add shares to their original position at certain points of stock activity (like when a stock falls back to support price, then bounces over the high of the lowest pullback day). Gradually increasing position is called “scaling in”.
Hot Tip: Professionals and institutional managers utilize the “scaling” method all the time. They scale in when buying, and scale out when selling. It’s a dandy way of minimizing risk while maximizing profits.
Our position this morning:
Our position after the unintentional scaling in. Additional 500 shares bought @ $0.75:
The smart scaling-in point would’ve been yesterday, at $0.69 a share. Let’s consider that scenario. Additional 500 shares bought @ $0.69:
Being a very small investor, I’m very prone to broker commission ‘damage’: the fees eat up a lot of the profit on my small trades. (Since I’m still learning I’m okay with that, this is like my education cost.) But when done right, even taking into account very small profit margin and relatively high commissions, scaling in still makes sense.
I didn’t scale in at the right time, but I’m not at a loss. In fact I could’ve sold all the shares today, and still made a net profit of ~ $15 🙂
As my friend put it, there’s nothing wrong with buying more shares of a company you believe in. I agree, and still think the company is solid. However, this is a perfect example of learning throught my own mistakes.
I must work on being less “trigger-happy”.
Secretly hoping someone will come out and say they’ve confused selling and buying, too.