1. Scaling
By Ken Hodor
10/14/10

2. Five Fundamental Trading Truths
Anything can happen
You don’t need to know what is going to happen next in order to make money.
There is a random distribution between wins and losses for any given set of variables that define an edge.
An edge is nothing more than an indication of higher probability of one thing happening over another
Every moment in the market is unique
From: Trading in the Zone by Mark Douglas

3. Use Signal to Go All In This is arrogance—no one knows the future
No one knows what will happen next

4. Scaling Market is going up Market is going sideways
Increase position in what is working
Market is going sideways
Long when near bottom of range
Sell or sell short at top of range
Market is going down slightly
Still in major up trend buy more down to bottom of channel
Market is going down quickly
Increase short position as it is working

5. Scale Market Moving Up

6. Scale Market Moving Down

7. Scale Market moving Sideways

8. Tranche size Fixed tranche size Variable tranche size
Use 25% on each tranche
4 possible tranches per instrument
Variable tranche size
More sophisticated and more profitable
Vary size based on distance to 2-standard error bands about a linear regression channel

9. Conclusion
Using scaling you do not have to always be right…on average you are indeed right.