Full position in, full position out, will earn more, or lose less over the long haul, on every system whether good or bad.
For the record, I do not scale out. But that is only because my system does not include that practice. All trading techniques should be viewed as part of a system. If you change entry, exit, stops, trade management, etc. then you are changing a part of the system, which potentially affects all other parts of the system. Therefore, it does not make sense to discuss scaling out in an isolated fashion. Whether scaling out is advisable depends on whether doing so is the most workable method for your particular system.
Every system benefits from not scaling. If there is a reason to take a part off, then there is reason to take all off. If not, then why are we taking any off to begin with? The trader who is scaling will take half off and let the rest of trade give back some/all profits on that portion, or take half off and let the other half run to a larger profit. Both are inferior behaviors over the long term. The trader scaling however will let the whole trade run to full stop loss when wrong. It makes no sense to choke off winners--ever. If a trader is bad at picking entries and exits, then they would surely need the winners to run fully when right, so that losses can be mitigated over the large sample. This is true whether using a profit target system, or using a system like I do, that just lets trades run until it makes sense to exit. Thank you for your posting.
I'm interested then, in how you might refute a couple of examples. One is that a reason to take part off could be to ensure that I at least break even. I buy 200 shares of XYZ today. It doubles tomorrow. I sell 100 shares. I keep the other 100, believing it may double again. Here, I have a goal of making money. But I also have another goal (which I just accomplished) of not losing money. I suppose you can make the argument that I had no reason to sell the 100 shares and that if I really believe in the stock, I should not have sold any. But I have more than one goal. Many traders do. Another reason would be to rebalance. No matter how much I believe in XYZ, I don't want XYZ to constitute too much of my portfolio. How would you refute these? Thanks
These "separate" goals are co-dependent, not independent. Not losing money is fully compatible with making money. It's like bringing in a big paycheck while not losing money on frivolous expenses or excessive credit card debt. Both actions enhance your bottom line. As for rebalancing, that's just a simple form of risk management: don't put all your eggs in one basket. But if you're a skilled trader, things like rebalancing become trivial and easy to ignore for a more profitable strategy. Rebalancing is for the buy-and-hold crowd. Active traders can do better.
f your initial profit target is where you have the best expectancy of maturity, then the whole position should be exited there and not gambled on beyond the profit target. If the run past the intial target is really where you should be exiting the position , then certainly scaling out is inferior. I would recommend finding at least a 3 to 1 Reward/Risk system. As defined by wareco in the ES Journal, you would only have to be right about 31% of the time to be profitable, while a 1 to 1 is about 62% (using commissions of .5 ES pts).
Often times I see someone stating that you cannot trade size without scaling in or scaling out. This is not what I am talking about. If size is sufficient, one it going to necessarily have different fills for different portions of the entry and exit. This does not negate the point that when one enters or exits, the full position should be put on or taken off simultaneously. It's common sense and mathematically superior over the long haul.