"Scaling out" is inferior behavior

Discussion in 'Strategy Building' started by Buy1Sell2, Oct 18, 2006.

Do you scale out of positions?

  1. I always scale out

    113 vote(s)
    14.1%
  2. I scale out most of the time

    228 vote(s)
    28.5%
  3. Most of the time, I do not scale out

    189 vote(s)
    23.6%
  4. I never scale out

    270 vote(s)
    33.8%
  1. bone

    bone

    If you are moving real size, you essentially have no choice but to scale into and then out of the position. You just don't show 10K contracts to the market unless you are using an OTC or exchange facilitated block trade facility.

    If you are taking a loss, I would agree that getting out of the entire position at once is preferential.

    Also, many funds and large prop firms "iceberg" their orders. This is considered to be "scaling" by definition but the purpose is legitimate in terms of optimizing price at volume.
     
    #1571     Jul 7, 2015
  2. Buy1Sell2

    Buy1Sell2

    That is not scaling in and scaling out as I am describing. I am talking about the trader who is taking 1/2 off etc at a profit target and letting the rest run. Of course you are going to get different prices necessarily when putting a large position on.
     
    #1572     Jul 7, 2015
  3. romik

    romik

    Scaling out can be a superior strategy though. Let's consider the following example:

    In this hypothetical example we would consider 2 accounts both trading 2 contracts (ES), same entries, but different exits. The non-scale out account would be aiming to achieve +9 points with a -3 point stop full position in and out, whereas scale out account would scale out 1 contract after +3 point gain and hold 1 contract for +9 point gain or stop at entry, with an exit of 2 contracts at -3 point loss, just like the non-scale out account.

    After 100 trades the non-scale out account generated 70 losing trades due to inability to generate a high percentage of +9 point winners as price would go up some, reverse failing to reach +9 and position would have been taken out at -3 point loss 70 times.

    A) 2 x 70 losers at 3 points x $50 -21,000
    B) 2 x 30 winners at 9 points x $50 +27,000

    Gross non-scale out: +6,000

    After 100 trades the scale out account generated more winners than non-scale out account due to scale out of 1 contract after +3 point gain was reached and then the same 30 trades generated +9 point gain (as in the non-scale out account) but with 1 contract.

    This is a very realistic outcome based on intraday behaviour of price, it goes up some, then reverses taking out stops and then maybe going back in the previously correctly anticipated direction. The $ advantage is clearly in the scale out account, because the non-scale out account generated a lower win rate due to either going for -3 or +9 full position whereas a higher win rate was achieved in the scale out account as we locked at +3 half position.

    C) 2 x 30 losers at 3 points x $50 -9,000
    D) 1 x 70 winners at 3 points x $50 +6,000
    E) 1 x 30 winners at 9 points x $50 +13,500

    Gross scale out: +10,500

    Open to debate :)
     
    Last edited: Aug 8, 2015
    #1573     Aug 8, 2015
  4. Inferioring out is scaling behavior. :eek:
     
    #1574     Aug 17, 2015
  5. Buy1Sell2

    Buy1Sell2

    --and the disposition of the 40 contracts not included in scale out example?
     
    #1575     Oct 8, 2015
  6. romik

    romik

    Disposition of 40?
     
    #1576     Oct 8, 2015
  7. Buy1Sell2

    Buy1Sell2

    you only show 160 contracts being traded in the scale out example versus 200 in the non scale out example.
     
    #1577     Oct 8, 2015
  8. romik

    romik

    Amount of lots is the same. Win ratio is higher in scale out example.
     
    #1578     Oct 8, 2015
  9. Buy1Sell2

    Buy1Sell2

    This is only 160 contracts.


    C) 2 x 30 losers at 3 points x $50 -9,000
    D) 1 x 70 winners at 3 points x $50 +6,000
    E) 1 x 30 winners at 9 points x $50 +13,500
     
    #1579     Oct 8, 2015
  10. Buy1Sell2

    Buy1Sell2

    This is 200

    A) 2 x 70 losers at 3 points x $50 -21,000
    B) 2 x 30 winners at 9 points x $50 +27,000
     
    #1580     Oct 8, 2015