Scale Out

DEFINITION of 'Scale Out'

The process of selling portions of total held shares while the price increases. To scale out (or scaling out) means to get out of a position (e.g., to sell) in increments as the price climbs. This strategy allows the investor to take profits while the price is increasing, rather than trying to time the peak price. If the actual value continues to increase, however, the investor could be selling a winner too early.

BREAKING DOWN 'Scale Out'

Scaling out of a stock lets an investor reduce exposure to a position when momentum seems to be slowing. For example, if an investor holds 600 shares of a company and thinks the price will stop climbing or will drop somewhere around $41, he or she could scale out by selling 200 shares at $40, 200 shares at $40.50 and 200 shares at $40.75. The average selling price would therefore be $40.42, thus reducing the risk of missing out on profits if the price did drop.

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