Scaling into FVG Trades: A Multi-Entry Position Management Strategy

Setup Description

This article outlines an advanced position management technique for trading Fair Value Gaps (FVGs) that involves scaling into a position with multiple entries. Instead of entering a trade with a single order, this strategy advocates for breaking the entry into smaller pieces and adding to the position as the trade moves in your favor. This approach can help to improve the average entry price, increase the position size on high-conviction setups, and manage risk more effectively.

The core principle of this strategy is to enter a partial position at the initial FVG entry and then add to the position at subsequent FVG or order block levels. This allows you to test the waters with a smaller size and then increase your exposure as the trade develops. This is a more dynamic and flexible approach to trading FVGs that can be adapted to a variety of market conditions.

Entry Rules

Long Entry:

1. Identify a primary FVG entry on the 5-minute or 15-minute chart.
2. Enter a partial position (e.g., 1/3 of your total intended size) at the primary FVG.
3. If the price moves in your favor and creates a new FVG or tests a key order block, add another partial position.
4. Continue to add to the position at subsequent levels, up to your maximum intended size.

Short Entry:

1. Identify a primary FVG entry on the 5-minute or 15-minute chart.
2. Enter a partial position at the primary FVG.
3. If the price moves in your favor and creates a new FVG or tests a key order block, add another partial position.
4. Continue to add to the position at subsequent levels, up to your maximum intended size.

Example: Long Entry on GOOGL

Alphabet (GOOGL) is in an uptrend on the 15-minute chart. A primary FVG forms at $170. You enter a 1/3 position at $170. The price rallies to $172 and then retraces to a new FVG at $171. You add another 1/3 position at $171. The price then rallies to $175.

Exit Rules

Profit Target:

• The profit target should be based on the average entry price of your entire position.
• Use a 2R or 3R multiple of the average risk per share.

Stop Loss:

• The stop loss for the entire position should be placed at a single, logical level, such as below the initial FVG.

Profit Target Placement

Profit target placement for this strategy should be based on the average entry price of your entire position. Once you have scaled into your full position, calculate the average entry price and then set your profit target based on a multiple of your average risk per share. This will ensure that you are still achieving a favorable risk-to-reward ratio, even with multiple entries.

Stop Loss Placement

The stop loss for this strategy should be placed at a single, logical level that invalidates the entire trade setup. This could be below the initial FVG, or below a key support level. It is important to have a single stop loss for the entire position, rather than multiple stop losses for each individual entry.

Risk Control

• Max Position Size: Predetermine your maximum intended position size before entering the trade.
• Risk Per Entry: The risk on each individual entry should be small, as you are planning to add to the position.
• Correlation: Be mindful of correlation when scaling into multiple positions.

Money Management

Position Sizing:

Your total position size should not exceed your maximum risk tolerance. For example, if you are willing to risk 1% of your account on a trade, and you are scaling in with three entries, each entry could have a risk of 0.33%.

Scaling In/Out:

• Scaling In: This is the core of the strategy.
• Scaling Out: You can also scale out of the position at multiple profit targets.

Edge Definition

The edge of this strategy comes from the ability to improve the average entry price and increase the position size on high-conviction setups. By scaling into a position, you can reduce the risk on the initial entry and then add to the position as the trade moves in your favor. This is a more flexible and dynamic approach to trading that can lead to larger profits on winning trades.

• Win Rate Expectation: The win rate for this strategy will be similar to other FVG setups, but the average winner should be larger.
• Profit Factor: The expected profit factor is between 2.0 and 3.0.