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To: Larry S. who wrote (23917)	7/30/2000 11:10:00 AM
From: Ron McKinnon	Read Replies (1) \| Respond to of 53068

antone who knows me knows that I am a nutcase (in many ways) on "legging in" for position trades others call it "scaling in" an article from TSC friday: Scaling: A Brief Primer 7/28/00 4:38 PM ET RON KRAFT: Scale shmale. What the hell are you talking about, Kraft? What's with this scaling stuff? It's quite simple. Imagine that you are given the opportunity to win $1 million at an NBA all-star game if you sink the pill from half-court. We've all seen it before. Now the question is: Do you want one chance or 10 to hit the jackpot? Obviously 10. (Non-TheStreet.com readers would say one.) Same applies to stocks. You want to win the jackpot, so you want as many shots as possible. So let's say I want to buy 100 shares of a stock at 90, but I am not sure if it's going higher or lower in the short term. Instead of blowing your stake and dropping $9,000 at once, you scale in. If you feel strongly about the idea, then you drop an anchor and build half the position. I like to cap my first ball at 25% of the total position, with a preference to 10% scale-ins. So if the stock comes down to 85, you don't have to hit the bar at the close. You come back and scale in with another 10% parachute at 85 with your average cost now at 87.5. If the stock moves up to 90 again then you have 2.5 points in your pocket. So you do another 10% nibble and now average in at around 88. You own more stock and are still up 2 points. If the stock comes down from 85, then you buy more. If your stock is down on your sixth or seventh shot, you might want to rethink the timing of this transaction. But, at the end of the day, you don't get run over because you don't have to depend on being right the first time shooting for the hoop. You can't be impulsive in this game. You take it one shot at a time. It lowers the need for you to be a psychic. So scale your positions. That way, when the market turns on you, you can live to fight another day.