Beginning day traders usually trade 1 futures contract (or 1 group of 100 shares, or 1 forex lot), so their trading is all in all out (meaning there is one entry and one exit). More experienced and professional day traders trade multiple futures contracts (or groups of shares, or lots of forex), so they have some flexibility with their entries and exits (such as one entry and several exits, or several entries and one exit).
What is Scaling Out?
Scaling out is the process of using multiple separate exits to exit a trade. For example, a trader that is trading 4 futures contracts might exit their trade using three different exits of 1 contract, 1 contract, and 2 contracts. These exits would most likely be at different prices, and may be in response to different exit signals, or even different trading systems.
Reducing Risk
When it is used correctly, scaling out can be used to reduce the overall risk of the trade. For example, if a 3 contract trade is exited using 3 separate exits, and the price only moved slightly in favor of the trade before moving against the trade, the first contract might still be profitable, and provide enough profit to cover the loss of the remaing 2 contracts. This type of scaling out strategy, can significantly improve the risk to reward ratio, thereby reducing the overall risk of the trade.
