Nathan Reiff at Investopedia wrote about scaling into a trade, buying a position in stages rather than all at once, and asked me when it makes sense and when it does not.
The line I gave him: if you cannot write down your entry levels and your stop loss before you buy, you are not scaling. You are guessing in stages. Planned scaling means the decisions get made before the trade starts. Reactive scaling means you are deciding in real time based on how the price is moving in the moment, which is exactly when people make bad calls.
There is a myth worth killing here. Buying more shares when a stock drops does not always lower your risk. It can double your exposure to a thesis you never went back and checked. Averaging down feels like discipline. Often it is just commitment to being wrong.
A simple rule I use with clients who want to build a position: cap the full position at 2% to 3% of the portfolio before the first purchase. Set the price zones ahead of time. Put the stop loss on the whole position, not on each individual buy.
If your investing decisions feel more reactive than planned, that is the signal to stop adding and start writing things down first.
Read the full article at Investopedia →
