December 26, 2015

Difference between scale trading and reverse scale strategy



Scale Trading

Reverse Scale Strategy

Positions added only if stock declines.

Positions added only if stock increases.

Your average cost per share is always above the current market price after second purchase. 

Your average cost per share is always below the current market price after second purchase.

Sacrifices large long-term gains for small short-term gains.

Sacrifices small short-term gains in order to realize large long-term gains.

Unlimited potential for loss.

Unlimited potential for gain.

Makes no attempt to cut losses. Adds to losing positions.

Cuts losses. Does not add to losing positions.

In a portfolio, automatically allocates majority of capital to worst-performing issues.

In a portfolio, automatically allocates majority of capital to best-performing issues.


Read more: Five Minute Investing: The Reverse Scale Strategy | Investopedia http://www.investopedia.com/university/fiveminute/fiveminute8.asp#ixzz3vOhW2Ms1 

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