Stops and Scaling In
How initial stops and pyramiding work together in a Turtle-style risk framework.
Stops define the trade’s failure point. Scaling in defines when risk can be increased after the market moves in the intended direction. Both must be rules, not reactions.
Initial stops
An initial stop is set before or at entry. It should reflect the system’s risk model, not the trader’s pain tolerance after the market moves.
Volatility-based stops are common because different markets move differently. A fixed percentage stop may be too tight for one market and too wide for another.
Scaling in
Pyramiding adds to a position only after price moves favorably. It is not averaging down. The logic is that the market has begun to confirm the trend, so the system can add exposure within predefined risk limits.
Boundaries
Scaling needs maximum Unit limits, market group limits and total portfolio risk limits. Without those boundaries, pyramiding can turn a controlled trend-following system into uncontrolled leverage.