Talking Points:
• We can never be absolutely sure of trades, however, the best ones are those we are most confident in
• To account for a less-than-certain market view, scaling the position on entry and size can help
•A strategy not only highlights good market opportunities, it defines how we execute them
Want to develop a more in-depth knowledge on the market and strategies? Check out the DailyFX Trading Guides we have produced on a range of topics.
There is never 100 percent certainty in a trade. Often times, traders tend to over- or underestimate opportunities' potential to justify taking it or to defend their decision not to. Our confidence in our trades is a critical element of trading, and we can adapt our approach to account for different levels of confidence. One of the most active ways to adapt to confidence intervals is to scale position size and entry. If the trade look only 65 percent in our assessment rather than the 75 percent we look for, a smaller position size can allow us to pursue the setup with a smaller level of risk. Perhaps if our confidence will build with additional factors, we can increase the trade at establish points - or even decrease should the forecast diminish. We discuss how scaling is a quantifiable means to answer a qualitative conundrum in today's Strategy Video.
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