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"Scaling out" is inferior behavior
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
there is no "right" way to trade. the best way to trade is to find a strategy that matches your personality. for some people scaling works. simple as that.
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Re: Re: "Scaling out" is inferior behavior
Quote from CutsThrough:
Is "too big" of a trading size relative to one's capital base or the liquidity of the instrument being traded?
Quote from vhehn:
there is no "right" way to trade. the best way to trade is to find a strategy that matches your personality. for some people scaling works. simple as that.
Quote from vhehn:
there is no "right" way to trade. the best way to trade is to find a strategy that matches your personality. for some people scaling works. simple as that.
Quote from J-Trade:
Well said, vhehn.
The best trader I know - a very successful man - scales both in and out.
In backtesting mechanical trading systems with a suitable parameter set , I have noted that scaling out almost always reduces total net profit, whilst also smoothing the equity curve, increasing the winning percentage and reducing the drawdowns. Many would find these worthwhile trade-offs, as do I.
J.
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If at first you don't succeed ...
If you do not scale out of trades, is it safe to assume that you have the ability to pick the exact top's and bottom's?
__________________
GO COUGS!
Quote from Buy1Sell2:
There is a right way to trade
Quote from JORGE:
If you do not scale out of trades, is it safe to assume that you have the ability to pick the exact top's and bottom's?
Quote from J-Trade:
Buy1Sell2,
If psychology was not a critical part of trading - and I would say it is hard to argue otherwise - I would agree with you : if backtesting shows that not scaling out produces the optimal net profit, there it is.
J.
Scaling adjusts both reward and risk.
Most traders who rule out scaling are too binary to see the fact that risk is favorably adjusted.
Have you ever traded 10 positions at the same time, 3 minutes after the open, all manually? Hmmm.... ?
Scaling out is a valid way to manage risk, take advantage of statistical odds of certain price moves and capture price spikes you can't react to fast enough. It has nothing to do with being 'scared' or 'wildly over extended'.
You come across as closed-minded and generally clueless when you make blanket statements of certainty regarding the markets.
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior.
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
Most times, I am able to pick the area. Not the tick, but the area.
__________________
GO COUGS!
good point lescor,
certainty 
we project to much of our needs onto the market at times.
scaling out is a very valid way of trading, because if you get a below avg move, you still have have created a risk free or at worst a breakeven trade.
Quote from lescor:
You come across as closed-minded and generally clueless when you make blanket statements of certainty regarding the markets.
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
Is this the extent of what you can throw at me?? Simplistic? , Clueless?, Closed Minded? Come on folks, my portfolio is growing as I type with minimal trade activity and very little energy expended. If that is simplistic, then I accept the description.
Quote from lescor:
Have you ever traded 10 positions at the same time, 3 minutes after the open, all manually? Hmmm.... ?
Quote from JORGE:
You are a far better trader than me. Until I acquire the ability to pick the exact end of a move I will have to settle for the inferior practice of scaling out.
"There are reasons all the smartest Big Players...
Are all building algorithmic scalping Bots as fast as they can.
Buy and Hold is sub-optimal in today's decimal, near-zero transaction cost markets."
*
"Have you ever traded 10 positions at the same time, 3 minutes after the open, all manually? Hmmm.... ?"
*
"No. I am a position trader who occasionally puts on a swing trade. I view daytrading and trading at the open as inferior behavior as well."
I can see valid reasons for scaling into and out of complex or compound trade positions as a bonafide money-management strategy.
Likewise, scaling out of emini futures positions for the sake of trading "not to lose" is a mathematical, deleveraging weakness.
In defense of day traders (I 'r one myself) it is superior to swing trading / position trading if said trader is sufficiently skilled to handle that approach.
Most traders here (or anywhere) would "trade" shoes with lescor in a heartbeat. I'm done trading today myself with closed positions of +1pt ER, +3pts ER, +3pts ER and I choked out a stop at par from long 769.10 at the lows before it popped more than +4pts in my favor.
Day trading offers the highest profit potential due to turnover of capital... which is equal parts good and bad. Skilled daytraders can be seven or eight-figure yearly earners with no overnight stress. Unskilled daytraders are the first to go broke, no chance to pass go until skills are developed.
BTW... no computer bot will ever beat a skilled human trader in performance. Those programs are written because said writers of the code simply cannot handle themselves in our arena 
All in, all out in the ES & ER :>)
Austin
Quote from fearless9:
I could not agree less with you.
IMHO, B1S1 is trying to draw out traderīs opinions and successfully so as he drew out yours.
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Although there are exceptions to every rule, I generally agree with B1S2. Van Tharp (Trade your way to financial freedom) discusses the pitfalls of scaling out also.
Quote from Van Halen:
Although there are exceptions to every rule, I generally agree with B1S2. Van Tharp (Trade your way to financial freedom) discusses the pitfalls of scaling out also.
Quote from Buy1Sell2:
No. I am a position trader who occasionally puts on a swing trade. I view daytrading and trading at the open as inferior behavior as well.
As someone who absolutely hates sitting down indoors for any reason, the choice to day trade was not one of personal preference for me. I've done the swing trade and position trade thing... in commodities, FX and index options.
The big benefit to day trading for me is structured schedule. No worrying about overnight events. No waking in the morning with very first thought being, "Where is my position now?" No worrying about hedging off risk, or other means of avoiding outsized loss potential.
On the earnings front, today I managed to capture +7pts ER, flubbed an easy +4pts more thru knee-jerking stops and then shorted ER 770.10 = trailed out 766.10 into the recent drop.
Had I made no mistakes, it would be a +15pt session. With one glaring personal error, it is still a +11pt session overall.
There is no way under the sun I myself can make nearly the money in swing or position trading that is possible intraday. So I bite the bullet, spend my time in the chair and hang out here with you guys to pacify my desire to be outside.
DayTrader by fiscal-sense choice; not by preference 
i never scale out but that's not because i think it is not right, am good at pickin' up tops, especially on exits. still, i reckon sometimes it's the correct thing to do, aka, if the stock u are in is on total fire and u already banked good % gains, but odds are there's still room to go.
as posters said previously there aint no right nor wrong, it's all about personality and style.
Quote from austinp:
As someone who absolutely hates sitting down indoors for any reason, the choice to day trade was not one of personal preference for me. I've done the swing trade and position trade thing... in commodities, FX and index options.
The big benefit to day trading for me is structured schedule. No worrying about overnight events. No waking in the morning with very first thought being, "Where is my position now?" No worrying about hedging off risk, or other means of avoiding outsized loss potential.
On the earnings front, today I managed to capture +7pts ER, flubbed an easy +4pts more thru knee-jerking stops and then shorted ER 770.10 = trailed out 766.10 into the recent drop.
Had I made no mistakes, it would be a +15pt session. With one glaring personal error, it is still a +11pt session overall.
There is no way under the sun I myself can make nearly the money in swing or position trading that is possible intraday. So I bite the bullet, spend my time in the chair and hang out here with you guys to pacify my desire to be outside.
DayTrader by fiscal-sense choice; not by preference
On the days when ES and ER go nowhere at all... 6.75 hours at "work" here in the chair is much more draining than any brute-force physical labor I've ever done.
Grew up around dairy & grain farms, had my own trucking business when I was young(er). The longest day of physical labor then is not even close to draining as the dead-volatility sessions we've been plauged with for too long now 
Not completely true.
While the short term trader is fiddling around the same instrument back and forth like a mad man, the position trader has 5-10 positions open making much more money with better risk diversification.
"Position traders do it better". Many of my ex-girlfriends would attest to this statement.
Quote from illiquid:
There's always a trader who thinks he is superior to another; in your case, someone can look down in disdain at you "position" traders that sit through swings just to take out a "major" move in one trade. The position trader takes 100 pts out of a weekly move, while this other trader takes out 300 in the same time frame.
He would call you lazy for not locking in gains, then re-entering on pullbacks -- why sit through some obvious drawdawns in your position? Why not also temporarily flip your position to take out some more gains going the other way? Sounds silly doesn't it? Your answer to this is my answer to you.
In general I agree that scaling out is sub-optimal. The method taught by Joe Ross of immediately taking a small profit to "cover costs" is a good example of a suboptimal way to trade. That said, I think there are a couple of situations that warrant scaling. One is if yu are trading size and you need to exit when there are buyers. That generally means trying to sell into a run up, not waiting for the high tick. The other is if you are using multiple exit strategies. For example, you may sell one tranche at first resistance, another on a reversal bar and a thrid on a MA cross. Over long periods one method might be superior but over shorter time periods, they may average out to be better than an all or nothing approach.
The real problem with scaling out is that it is the flip side of averaging in or doubling down on losers. Scaling out encourages you to sell winners which is generally not what you want to do. Someone may note that I am on the opposite side here from the doubling down debate, where I suggested that was not always a terrible thing to do. The reason is simple. If you are disciplined, and that can be a big if, you will get out of a doubled dwon loser quickly if it continues to go against you. Your loss is capped even if it is bigger. With winners, it is crucial to ride the big winners as long as possible with as full a load as possible. Scaling out hinders that.
Quote from optionpro007:
Not completely true.
While the short term trader is fiddling around the same instrument back and forth like a mad man, the position trader has 5-10 positions open making much more money with better risk diversification.
"Position traders do it better". Many of my ex-girlfriends would attest to this statement.
B1S2,
If anyone has doubts over whether scaling out should be a part of their plan, then they should not be trading imo. This is because anyone who intimately understands their winning and losing trades will KNOW whether to scale out or not.
For ex, if you've studied your trades and know that a very small % trades will stop you out immediately at a full loss, and further that a large % of your losers/break evens were once in the money by x amount, then you would be a fool not to scale out. This would be the Mark Douglas approach and what he recommends based on his own trading.
Conversely, if a large % of your losers are full loss stop outs, then you would be an idiot to scale out just to make yourself feel better...that would be the fast route to the poor house. This would be the Van Tharp recommendation.
So I disagree with Van Tharp who is anti scaling out as well as with those such as Mark Douglas who only recommend scaling out. Those absolute positions have more to do with a need for dogma in trading than sound logic.
Knowledge is power in trading/life and a lot of our fear comes not knowing. That kind of fear is perfectly rational. If you truly have an edge as well as a method which is consistent enough to study that edge, there will be no more doubts of whether to scale in or scale out. If you are using a nebulous trading idea generating setup, then that's a big problem because you have no basis to study your trades and acquire the knowledge that is necessary to trade confidently.
So in short, 2 things:
a. Scaling out or not is a decision that should be made based on the intensive study of your trades.
b. If you don't have a consistent way of generating trades, you won't be able to do the above.
There's been a LOT of posts/threads on this on ET, and a good part of what I've said above has been said many times before on this board.
To him who has ears...
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After Mastery - Chop Wood Carry Water
With All Thy Getting, Get Understanding - Solomon
agree.
Quote from illiquid:
It was just a counter-example to a rather pompous argument. There are always occasions where one looks like the idiot compared to the other.
And hey, there's nothing out there that says you can't do both.
This is because anyone who intimately understands their winning and losing trades will KNOW whether to scale out or not.
Very well explained... that is an excellent example of correct personal trade management. Entry, exit and stops are synonymous, and neither more or less important than another.
Quote from Eliot Hosewater:
I thought he also said scaling IN is more profitable that scaling out or doing nothing. That's the Turtle Trading method IIRC. Also, scaling in is just another form of cost averaging.
__________________
If at first you don't succeed ...
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
__________________
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You can make it to the Hall of Fame getting base hits or home runs... but you gotta protect the plate!
Patient traders obtain better prices than impatient traders do because they are willing to search longer and harder to arrange their trades at favorable terms. Impatient traders pay for the privilege of trading when they want to trade... Larry Harris, Trading & Exchanges.
...it was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should have showed the greatest profit... their experience matched mine... they made no real money. Men who can be right and sit tight are uncommon... but it is only after a stock operator has firmly grasped this that he can make big money. The market does not beat them they beat themselves because though they have brains they cannot sit tight! Reminiscences (V)
It's Deja Vu all over again.
http://elitetrader.com/vb/showthrea...ghlight=scaling
http://elitetrader.com/vb/showthrea...ghlight=scaling
Bottom line-- traders who have been successful scaling out have duped themselves into believing that it helps with their profitability etc. However, they don't realize that the profits would be much more bountiful by letting the full winning position run. It's just common sense.
Quote from Buy1Sell2:
I view daytrading and trading at the open as inferior behavior as well.
Quote from Buy1Sell2:
Bottom line-- traders who have been successful scaling out have duped themselves into believing that it helps with their profitability etc. However, they don't realize that the profits would be much more bountiful by letting the full winning position run. It's just common sense.
The book Smarter Trading by Perry Kaufman devotes an entire chapter on Profit-Taking (Scaling Out). Below is an excerpt from the book, which I recommend.
The following are some strong arguments for profit-taking:
Quote from Buy1Sell2:
No. I am a position trader who occasionally puts on a swing trade. I view daytrading and trading at the open as inferior behavior as well.
Quote from Buy1Sell2:
Bottom line-- traders who have been successful scaling out have duped themselves into believing that it helps with their profitability etc. However, they don't realize that the profits would be much more bountiful by letting the full winning position run. It's just common sense.
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Whenever a trader thinks his trade is 100% right, he is 110% wrong
Hydro it's not about common sense but different perspective.
b1s2 is talking about (for example) going long the ES on May/03 and still be long today...
Short term traders correctly focus on exit before a trade is placed. Long term traders let the market tell them when to exit.
No comparison. Both styles can be profitable though.
One must trade his/her own personality.
Quote from Hydroblunt:
I'll give you a simple example where it may become apparent that your common sense is lacking.
I go long 800 shares of a stock part of a sector that does 500k-1mil volume a day. It goes my way, I'm in the money and it starts accelerating with a parabolic move. Anyone who trades sector stocks, know that these spikes up get sold into. When they pull back, they pull back hard with little liquidity. And sometimes, they end the move.
Hence I put out an offer out for 200-400 shares at a price that at the moment would need a spike. The rest I plan to hold foreseeing a possible bigger move.
Following your mentality, I would either exit at the spike up with no consideration for the bigger move, hold out for the big move or exit when it's obvious the whole move is over. By scaling, I can capture the spike up with a part of my shares and let the rest ride.
Let's do a simple math example. You are in the money 10 cents and the spike starts. 50% chance the move continues after the spike without knocking you out, 50% chance it won't or just knocks you out. We'll make 10 cent profit the stop, 50 cent the spike, 1 point the "big move".
So scenario A you hold all 800 for the big move (no scaling), scenario B you scale out half at the spike, hold half for the big move. Do the math, it's pretty basic. You can also throw in Scenario C where you exit at the spike with 800 shares, which would show an edge that scaling gives you.
These are all hypothetical numbers, obviously. I think they are somewhat close to reality. And I am ignoring the extra slippage 800 shares would experience.
There are many reasons why scaling in and out can make good sense. If I get a 10% up move in one day you better believe I am going to sell some shares. Now I will probably buy them back after the gap partially fills, but I am going to lock in some profits.
If I don't like the action of a stock after a few days I may take half of my shares off the table right then.
If you are a position trader YOU CAN ALWAYS GET BACK INTO THE STOCK. There is no need to buy and hold at all costs.
edit: and as everyone knows, you haven't made a profit until you book some of those profits.
Quote from optionpro007:
Hydro it's not about common sense but different perspective.
b1s2 is talking about (for example) going long the ES on May/03 and still be long today...
Short term traders correctly focus on exit before a trade is placed. Long term traders let the market tell them when to exit.
No comparison. Both styles can be profitable though.
One must trade his/her own personality.
__________________
Whenever a trader thinks his trade is 100% right, he is 110% wrong
Quote from optionpro007:
Short term traders correctly focus on exit before a trade is placed. Long term traders let the market tell them when to exit.
Quote from optionpro007:
Hydro it's not about common sense but different perspective.
b1s2 is talking about (for example) going long the ES on May/03 and still be long today...
Short term traders correctly focus on exit before a trade is placed. Long term traders let the market tell them when to exit.
No comparison. Both styles can be profitable though.
One must trade his/her own personality.
As far as to scale or not to scale ... I think we've pretty much answered the question that both (and many other methods) can prove to be consistently profitable, provided a trader has everything else in place.
Me personally, I like the scalling in/all out approach, it makes trade entry easy, lets me ride any given trend for its duration, and allows me to exit with a large portion of any profit that the move generated.
It's a worthy topic of discussion and obviously a key point of trading which many traders actively work with to consistently maintain/increase their overall profitability.
Regards,
Jimmy
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If at first you don't succeed ...
Quote from JimmyJam:
.
Me personally, I like the scaling in/all out approach, it makes trade entry easy, lets me ride any given trend for its duration, and allows me to exit with a large portion of any profit that the move generated.
Quote from OldTrader:
I'd say the reason for the scale-in is that I to put a small position on at first, test the waters so to speak, then add to it as long as my reason hold. Sometimes I add on weakness, sometimes on strength as it proves itself. One advantage of this is that when/if it immediately goes against you and starts to prove you wrong, you have a minimum position on.
Reading all these posts reminds me of when I was first learning to play craps. After three days of playing as "smart" as possible, one of the dealers finally pulled me aside and asked, "so do you want to learn how to make some real money in this game or do you just want to nickel and dime it forever?"
What he knew then, and what I know now, is that in odds based games (such as craps and blackjack) you'll never make any money at all if you bet the exact same amount each time. An experienced player is going to do the exact opposite of scaling in (which is impossible with gambling) or scaling out (which would be the equivalent of reducing your bet after a win). The experienced gambler (who would argue that they're not really gambling at all....or at least as little as possible) would "press their bets up," and would continue to do so until the streak is over. Have you ever seen a good blackjack player bet $100, win, and then bet $50 or $100 the very next hand....Not unless they're counting and they knew the deck was raw....no, they press it up (which really means re-investing their profit), and bet $200 the very next hand. If they win that one maybe they increase their next bet to $300 and collect $100. If they win that one, the next bet might be $400 and they collect $200 or $500 and only collect $100. Same with craps, I can't tell you the number of times I've built a $12 bet on a 6 all the way up to $600, only to seven out and have made more in 8 rolls than I would have made if that stupid $12 bet had hit 30 times in a row. Its all about raising the stakes on somebody else's dime (this is of course assuming that you have the ability to mentally consider the money in play house money and not your money like most people would want to do).
This has been the number one thing that has helped me the most in my trading. The ability to build a position. If I enter a trade with 1 contract, I am pretty upset with myself if at the end of the move I still have 1 contract. No, I want to start with a small position and end a move with a large position...hopefully with a position larger than what I would have originally felt comfortable with. This is the exact opposite of averaging down on a losing position......this is averaging up on a winning position.
So the next time you're in a profitable trade, instead of thinking about getting out just because you're profitable, maybe consider taking some of that profit you have and re-invest it in your own trade the next time it retraces. Sure, you might get stopped out a little more on relatively small size, but when you finally catch that run you'll just kill it.
Also, I like to think about my trades as employees. I always think about how you reward employees for doing a good job, and typically don't give them raises for doing a bad job. Well, if I'm in a trade that hasn't done anything that I'm happy with except move against me, then why do I want to reward it with more size. Instead I would rather reward it when it does things that make me happy, like move in my direction, or take out swing highs or whatever it is you're looking for. If a trade does something to make you happy, then reward it by adding on to it, and don't reward it for doing things that make you unhappy or cause you stress.
Buy1Sell2 says: "Scaling out" is inferior behavior
vhehn says: there is no "right" way to trade. the best way to trade is to find a strategy that matches your personality. for some people scaling works. simple as that.
My 2c: There is lots of inferior behavior out there. Nobel Prizes in economics are being given to people who point out inferior behavior and call it "behavioral finance." For example, trading any asset allocation other than the Markowitz Efficient Frontier optimum is inferior behavior ... but lots of people and lots of multi-billion dollar institutions do it. They have found what works best for them, and they don't mind if you or I or Harry Markowitz accuses them of "inferior behavior".
So I agree with vhehn; find what's optimum for you and don't worry about the opinions of others. They ain't you.
Quote from Jachyra:
So the next time you're in a profitable trade, instead of thinking about getting out just because you're profitable, maybe consider taking some of that profit you have and re-invest it in your own trade the next time it retraces. Sure, you might get stopped out a little more on relatively small size, but when you finally catch that run you'll just kill it.
Quote from J-Trade:
The best trader I know - a very successful man - scales both in and out.
J.
Quote from Buy1Sell2:
Little does this man realize that he would be tremendously more successful with out the scale outs.
__________________
I'm handing you no blarney
Quote from Thunderdog:
If only he were as smart as you are.
*Sigh*
Quote from Hydroblunt:
Test it on several timeframes if you need to. I bet if you plug in slippage, it would prove to be the wiser choice considering the drawdown.
[QUOTE]Quote from Buy1Sell2:
Actually smart has very little to do with trading. Common sense is more the key. It's better to keep things as simple as possible and run with a profitable trade as long as possible. There are quite a few unnecessary classes, websites, programs and publications all designed to make the newer and inexperienced trader believe that trading is hard.--It isn't. [/QUOT
Very wise.
Trading is ring fenced by an industry whose objectives are quite different than those of a successful Trader.
Newbies need to understand this point of view otherwise they will be caught in a web of dependency.
Quote from Buy1Sell2:
Exactly what I thought would happen. My point is misconstrued by readers to mean that I am talking about holding through long periods. What am I saying is that no matter what your time period, whether it's a 1 minute chart or a 1 year chart--you do not scale out profits. It's is a deficient notion to choke out profits.
No one would hold through periods of drawdown greater than 2 percent of total liquid net worth.
Quote from fearless9:
[QUOTE]Quote from Buy1Sell2:
Actually smart has very little to do with trading. Common sense is more the key. It's better to keep things as simple as possible and run with a profitable trade as long as possible. There are quite a few unnecessary classes, websites, programs and publications all designed to make the newer and inexperienced trader believe that trading is hard.--It isn't. [/QUOT
Very wise.
Trading is ring fenced by an industry whose objectives are quite different than those of a successful Trader.
Newbies need to understand this point of view otherwise they will be caught in a web of dependency.
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
For example let's say that you are trading a system in the ES with a 3 point stop and a 6 point profit target. --You don't take profit at 5 points, you let the whole position run to 6 points. Common Sense.
__________________
I'm handing you no blarney
Quote from Thunderdog:
Unless it only reaches 5 points and then retraces. Then you lose 3. Hey, if you can arbitrarily decide how far the market will go in your examples, then so can I.
__________________
If at first you don't succeed ...
Of course, if you decide to scale out, you will never get the maximum possible profit -- in retrospect holding the max position versus scaling will always be better. But how many times will you exit entirely, and then see the market have another leg up? Or how many times will you decide to hold the entire the position, then watch it go back to your break-even point? Scaling is just cutting off the best and worst case scenarios.
Quote from illiquid:
Scaling is just cutting off the best and worst case scenarios.
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
For example let's say that you are trading a system in the ES with a 3 point stop and a 6 point profit target. --You don't take profit at 5 points, you let the whole position run to 6 points. Common Sense.
Quote from trendy:
And if it only gets to 5.75 points, then what? You ride it all the way back to breakeven? Or, maybe you decide to cover at some point once you realize the trade is unlikely to reach your 6 point target. Had you scaled out near your target, you would have wound up with a greater profit, than blowing it all out at once.
Quote from Thunderdog:
Unless it only reaches 5 points and then retraces. Then you lose 3. Hey, if you can arbitrarily decide how far the market will go in your examples, then so can I.
Wow, I agree with B1S2 and can't believe that others don't see the obvious truth in what he is saying.
It may feel good to scale out after making 3 pts and hold the rest for the full 6 pts but the bottom line is that one or the other is the correct place to sell everything.
Psychologically it is comforting to take some money off the table and increase your w/l rate but financially it is a sub-optimal thing to do.
I don't see how this is up for debate - all it would take is a mechanical system, run it with three different parameters sets:
First sell everything at 3 pt profit target
Second sell everything at 6 pt profit target
Third sell half at 3 and half at 6pt
There is no chance that the third scenario is going to outperform both of the other two. Either selling all at 3 or selling all at 6 is going to be superior, doing half and half (scale out) just waters down the optimum strategy with the sub-optimal strategy.
I guess if you don't know what your optimal exit point (profit target) is then scaling out could make sense but it seems like it would be worth your time to go through your trade history and figure when the optimal exit point is (would have been) and then just use that going forward.
Maybe I'm missing something but it seems pretty black and white to me.
(Edit: This is not to say that I never scale out, just that I realize what I am doing is not optimal - being human sucks like that)
Quote from GTS:
Maybe I'm missing something but it seems pretty black and white to me.
(Edit: This is not to say that I never scale out, just that I realize what I am doing is not optimal - being human sucks like that)
I think you are missing the point, the idea of playing with house money is a psychological cruch - it means you are trading suboptimally just to make yourself feel better. Wouldn't having more money at the end of the year make yourself feel better instead?
Quote from HolyGrail:
I guess the point you are missing is that there are no guarantees you will get the full 6 points and it can just as easily turn the other way. Just because one sets a target does not mean that target is DEFINITELY going to be reached. It's a goal, and that's all. Even if the goal is reached there still might be a chance the stock will continue to move higher. You would still scale out a portion and let the other part run. Personally I like to scale down to a point where I am playing with the house's money. Yes, I know it's still my money, but there is a great deal of comfort in knowing there is no way you could lose on a trade.
While I watch the charts wedge into typical index-option expiry death coils, let me add a couple of thoughts:
#1: In writing countless mechanical systems, every example with no exceptions showed diminished overall profit AND smaller profit per trade size using a scaled-out approach.
Why? Very simple. Some trades over a large sample size will go z-number of points in favor of typical entry signals. w-number of trades will immediately go against the entry, and y-number of trades will slop around in sideways fashion.
When building a system - method - approach, we must have some idea where to harvest profits from. That is critical for several reasons... in picking initial stop-loss / risk parameters, and managing winners.
In order to maximize overall returns AND per trade profit size, those z-trades need be captured in highest efficiency possible. There is no good way to manage the y and w type trades... they never offer much if any real profit potential.
The z-type trades are where an account balance grows. That is the edge, that is the bankroll. Any tactics used to exit z-trades early will directly diminish said bankroll.
In order to know our trade approach is sound, we must first prove that some number of trades will go far enough in favor to offset all else. If we know for a fact that exists in our approach, we must therefore treat each and every trade as if it will be a z-type result for maximum overall profit and per-trade potential.
*
Here's the human pitfall which overrides system trading: emotion places more emphasis on each and every single trade than emphasis on overall cumulative data from large sample size.
Said another way, we trust that some trades will progress far enough past entry to make us overall profitable, but we fixate on the results of the current trade more than overall blend of results.
You see where I'm going. Traders do go broke taking profits... that happens all the time. It happens because they take too small profits from z-type trades which is the essence of their edge. Little can be done to manage the rest, so small profits are erased = negated by small losses.
**
Whether scaling out is wrong for everyone or not is debatable. What is a mathematical fact on the topic? Write any mechanical system and add scaled out partial profit rules instead of all-out rules at optimum AVERAGE profit size. See what the results are in overall profit and per-trade profit size for each scenario. I know the answer already... but you'll believe your own math a whole lot more than you'll believe mine :>)
Hope this helps and/or entertains
Very well put - thank you!
Quote from austinp:
Write any mechanical system and add scaled out partial profit rules instead of all-out rules at optimum AVERAGE profit size. See what the results are in overall profit and per-trade profit size for each scenario. I know the answer already... but you'll believe your own math a whole lot more than you'll believe mine :>)
Well said. Now imagine if you had an approach that allowed you to increase your position size on the z-trades as they progressed, so that you were weighted more heavily in them.
Quote from GTS:
Now given that, what should you do with this strategy, sell everything at 3 pts, sell everything at 6 point, or scale out half your position at 3 pts and hold the rest for 6 pts?
Before you tear apart my example feel free to make up any scenario you want with targets and ratios - the bottom line is that selling at one point or the other will give you better returns then selling half and half. Its a mathematical fact.
The reasons given for scaling out of trades are usually based on emotion: release of tension = stress of unknown outcome with real money at risk. The mathematical part of scaling out versus letting profits run is quite easily examined. Even micro-scalpers (of which I am not one) need to ride out their winners a bit to make money overall.
"A man convinced against his will, is of the same opinion still"
Traders who decide = prefer to scale out of positions usually do so for emotional reasons. In reality, that is often a very important part of success or failure in the continued evolution as a trader.
**
The bigger question is, why the heck am I still watching the emini charts at all? This session ended many hours ago... someone forgot to turn off the Globex when they left the CME building.
(sigh) Whatever. I told you that you could use whatever examples you want rather than shooting down random numbers I threw out.
Quote from HolyGrail:
I would do none of the above. I would hold a portion for LONGER than the 6 points depending on the stock and the overall condition of the market, and if it still met my holding criteria. Playing with the houses money is not a crutch. It catches extremely long runs.
Quote from GTS:
(sigh) Whatever. I told you that you could use whatever examples you want rather than shooting down random numbers I threw out.
If that's the case then you should hold the entire position for longer than 6 points depending on the stock and the overall condition. Whatever targets you use, you are just reducing your returns by scaling out.
I just want to add one thing about myself. I am a swing trader and a position trader. As a swing trader I may allow that particular swing trade to turn into a position trade but I will scale out doing so I will eliminate most or all of my risk.
I also scale out on negative swing trades. If I buy a stock at 20.00 with an inital stop of 18.00 I will scale out half of my position at 19.00. Some people might consider than "non-optimal" but it has worked for me.
Quote from GTS:
Wow, I agree with B1S2 and can't believe that others don't see the obvious truth in what he is saying.
It may feel good to scale out after making 3 pts and hold the rest for the full 6 pts but the bottom line is that one or the other is the correct place to sell everything.
Psychologically it is comforting to take some money off the table and increase your w/l rate but financially it is a sub-optimal thing to do.
I don't see how this is up for debate - all it would take is a mechanical system, run it with three different parameters sets:
First sell everything at 3 pt profit target
Second sell everything at 6 pt profit target
Third sell half at 3 and half at 6pt
There is no chance that the third scenario is going to outperform both of the other two. Either selling all at 3 or selling all at 6 is going to be superior, doing half and half (scale out) just waters down the optimum strategy with the sub-optimal strategy.
I guess if you don't know what your optimal exit point (profit target) is then scaling out could make sense but it seems like it would be worth your time to go through your trade history and figure when the optimal exit point is (would have been) and then just use that going forward.
Maybe I'm missing something but it seems pretty black and white to me.
(Edit: This is not to say that I never scale out, just that I realize what I am doing is not optimal - being human sucks like that)
Quote from austinp:
While I watch the charts wedge into typical index-option expiry death coils, let me add a couple of thoughts:
#1: In writing countless mechanical systems, every example with no exceptions showed diminished overall profit AND smaller profit per trade size using a scaled-out approach.
Why? Very simple. Some trades over a large sample size will go z-number of points in favor of typical entry signals. w-number of trades will immediately go against the entry, and y-number of trades will slop around in sideways fashion.
When building a system - method - approach, we must have some idea where to harvest profits from. That is critical for several reasons... in picking initial stop-loss / risk parameters, and managing winners.
In order to maximize overall returns AND per trade profit size, those z-trades need be captured in highest efficiency possible. There is no good way to manage the y and w type trades... they never offer much if any real profit potential.
The z-type trades are where an account balance grows. That is the edge, that is the bankroll. Any tactics used to exit z-trades early will directly diminish said bankroll.
In order to know our trade approach is sound, we must first prove that some number of trades will go far enough in favor to offset all else. If we know for a fact that exists in our approach, we must therefore treat each and every trade as if it will be a z-type result for maximum overall profit and per-trade potential.
*
Here's the human pitfall which overrides system trading: emotion places more emphasis on each and every single trade than emphasis on overall cumulative data from large sample size.
Said another way, we trust that some trades will progress far enough past entry to make us overall profitable, but we fixate on the results of the current trade more than overall blend of results.
You see where I'm going. Traders do go broke taking profits... that happens all the time. It happens because they take too small profits from z-type trades which is the essence of their edge. Little can be done to manage the rest, so small profits are erased = negated by small losses.
**
Whether scaling out is wrong for everyone or not is debatable. What is a mathematical fact on the topic? Write any mechanical system and add scaled out partial profit rules instead of all-out rules at optimum AVERAGE profit size. See what the results are in overall profit and per-trade profit size for each scenario. I know the answer already... but you'll believe your own math a whole lot more than you'll believe mine :>)
Hope this helps and/or entertains
Quote from HolyGrail:
I would do none of the above. I would hold a portion for LONGER than the 6 points depending on the stock and the overall condition of the market, and if it still met my holding criteria. Playing with the houses money is not a crutch. It catches extremely long runs.
Quote from AAAintheBeltway:
.
Scaling out is by definition sub-optimal, but it is seldom the worst possible strategy.
Quote from austinp:
Traders who decide = prefer to scale out of positions usually do so for emotional reasons. In reality, that is often a very important part of success or failure in the continued evolution as a trader.
Quote from GTS:
Psychologically it is comforting to take some money off the table and increase your w/l rate but financially it is a sub-optimal thing to do.
Bottom line is that it's a personal question that has no blanket answer.
The primary rationale I have for entering full size but scaling out is that my entries and exits are almost always non-symmetrical: meaning, I have a higher standard for entering a trade than I do for exiting a winner. Sure, there are a few cases here and there where a clear signal to exit is given, so clear in fact that it merits a reversal of the position. But those rarely occur; if they happened all the time, I would be either long or short round the clock. In most cases however, the exit just isn't as clean as the entry, nor should it be in the way that I see my trades. That's just my personal justification, and it works fine from here.
In fact, if you see the markets as "discounting mechanisms" (and I'm sure there are many of you that don't need to for your trading methods), then logic dictates that you scale out of a profitable trade. Why? Price moving in your favor on your profitable entry means that others are finally catching up to your point of view. The more buying/selling impetus that occurs, the further price moves to reflect the momentum. If this shift was the reason for your entry in the first place, you have less and less reason for holding a full position as the shift gets priced in.
So in response to the first post of the thread: you are right, I do scale out of a position because I am uncomfortable with the size I am holding - at the time that I start to let some go. It has little to do with how much I held or was comfortable with when I first opened the position. As price moves, so does risk/reward, and scaling seems to be the only logical response for dealing with price as a function of discounting.
We are leaving out the most important factor, the risk vs reward.
If a six dollar move is a 6r then there is nothing wrong with taking 3r at three dollars.
Quote from Buy1Sell2:
This also is a correct statement. What you have with scaling out, is traders playing to not lose, instead of playing to win.
I agree and disagree. Yes you have to assume that the historically optimal exit point remains optimal but that is true about all aspect of your trading.
Quote from AAAintheBeltway:
While I tend to agree with you conceptually, I think there is a statistical flaw in the argument. You must assume that the historically optimal exit point remains optimal into the future.
From a 2002 thread: http://www.elitetrader.com/vb/showt...nnis#post137503
Quote from Pabst:
Great post Nitro. I am firmly with you and Commisso on this issue. I spent most of my career being a "true" scalper, i.e. a local who bought the bid and sold the offer. Adding to losers and peeling out of winners was my schtick. Very rewarding in the micro. Obviously low commissions and a tremendous positive expectancy are paramount for successfully employing such a strategy. However few traders are so skilled as to lay claim for any expectancy high enough to justify an even R/R. In the macro those "consistent, steady returns" that every novice yearns for are death waiting to happen.
True story. A guy was relating to me how he started way back in the MidAm with Rich Dennis. They would each enter a trade off the same setup. As the fellow I met would be getting out with a small profit, Dennis would be doubling up. I remember the phrase he used, "Rich would push the pedal to the metal on every trade." Of course RD was in his formative stages on his way to 200mil. Later in the evening a friend who was with me, said that the guy who had told us the story about Dennis had also been a pretty good trader. But on that night, many years after his prime, the fellow with the good tale, was toiling behind the bar pouring drinks.
I scale out regularly and I suppose it can be classed as "inferior" tactics, I don't really care what it is to others as long as there is a positive ROI at the end of a trade. I wish I could get a better ROI on an average trade, at the moment I can do what I am capable of doing. Perhaps one day I'll move on to mostly swing, after positional and finish with investing, when/if I become an investor I would probably consider all my past experiences as "inferior behaviour".
__________________
Romik
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
__________________
Everyone asks me... "Where do I start?"
My Answer is simple... Start by studying one thousand charts everyday, if this is too much work go to www. workopolis.com and look for something you may enjoy more.
Re: Re: "Scaling out" is inferior behavior
Quote from trend_guy:
This is one of the best posts of the year and it's clear you are a successful trader... thanks for the post and your comments.
__________________
------------------------
The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
Trailing stop
a) +4 -> down 2 -> +2 total
b) +5 -> down 2 -> +3
etc
Scaling out
a) +4 (50% position closed) -> down 4 -> +4 on 50% (+2 on 100%) same as in trailing, but 'noise range' is widened to 4, which in fact can lead to maximising the end result.
__________________
Romik
Re: Re: Re: "Scaling out" is inferior behavior
Quote from kiwi_trader:
Its just that he's wrong. In all of these discussions you can look at the failure mode for a behaviour and feel very wise. Then, if you're around trading long enough, you find there are also success modes - and some are very successful with them.
Almost everything works (even elliot wave) for someone. Just because I can't make it work doesn't mean it won't work for someone better/more suited to it than me.
__________________
Everyone asks me... "Where do I start?"
My Answer is simple... Start by studying one thousand charts everyday, if this is too much work go to www. workopolis.com and look for something you may enjoy more.
Quote from HolyGrail:
We are leaving out the most important factor, the risk vs reward.
If a six dollar move is a 6r then there is nothing wrong with taking 3r at three dollars.
__________________
Whenever a trader thinks his trade is 100% right, he is 110% wrong
Quote from austinp:
The reasons given for scaling out of trades are usually based on emotion...
__________________
I'm handing you no blarney
Hydro,
I think we are saying basically the same thing. While backtesting may reveal one exit method as superior over long periods of time, on any particular trade there may be circumstances that warrant altering that approach. A high volume spike that gives you a chance to unload big size might be one.
What B1S2 failed to mention in this thread is that his positions are hedged pretty much all the time, as far as I can remember. That, in essence, is totally different to a situation where there is just one directional position. He also tried to apply his principles in positional trading to intraday, that didn't work out and I would say primarily as there was no predetermined profit target. OK, some do not use predetermined PTs, but exit using either a trailing stop, scale out or simply exit 100% position when a possible reversal signal makes itself seen.
I am not knocking the way you trade B, I've picked up a lot of great info from your posts and you know I've always been appreciative of your willingness to give it away. But intraday you pretty much suck
__________________
Romik
Quote from Thunderdog:
Perhaps, but not necessarily. Unless you are especially gifted or lucky, an all-or-nothing mentality is not particularly congruent with an environment of uncertainty.
I believe it all comes down to whether or not it's part of your plan. For me if I scale in/out it's because I am trying to avg. down losing positions. For some, it's part of their plan. If you trade larger size than can be filled on bid/ask you have to scale in/out to aim for an avg price.
First of all, I'd like to thank everyone for sharing a wonderful, insightful conversation here while remaining perfectly respectful and courteous. Isn't that a pleasant change from too many other threads here?
Thank you for that!
*
I think scaling out for stock traders playing multiple - many positions makes more sense than traders playing one - two positions. There is a difference there, for sure.
**
Here's the main point I'd like you to keep in mind. When all of your trades are logged over three months, six months or a year, all you see is raw data results. There is no individual circumstance. There isn't this trade stalling at a double top, that trade nearing S2, the other trade filling a gap, earnings warning, terrorist threat, econ reports, etc.
Just raw math compiled... exactly like mechanical systems quantify. All of those individual discretion choices are merely emotional reasons to micro-manage THIS TRADE currently open in front of us.
I absolutely, positively guarantee you one thing as an iron-clad fact: if you are a directional trader, holding every trade a bit longer than you dare will make you A LOT more money in the future. I myself have missed out on a pretty big six-figures unrealized this year alone by exiting too many trades too soon. Settling for +$200 per ER contract or +$100 per ES contract when many, many of them went two - three times that was by far my biggest mistake.
Whatever I end up making this year, two times that was left unharvested because I jerked out of trades too soon. BTW... I do use trailed stops, and I abused them at times along the way.
***
That rule does not hold true for reversal scalpers. If your game is scalping +2pts ES short in pullbacks on an uptrend or +2pts long at pauses in a downtrend, forget about holding on for bigger gains.
If you are a swing or directional trader, I absolutely promise you that much bigger gains are possible all the time... if you hunt for an expect them to materialize. They already do, far more days than not.
#1 mistake most traders make (starting right here with myself in this chair) is exiting winners too soon. The next biggest mistake isn't even a distant second to that.
Now all I have to work on is holding most of my trades longer :>)
===
I'm off to Fort Drum NY for a long weekend of big-game hunting in the swamps. Quite sure I won't see a thing, but it's very therapeutic and self-balancing to be out in the mucky wilderness like that. Wish you could be right there with me :>)
My last post in this thread, I hope my little bit helped someone, and best trading wishes to you!
Austin
Austin you very well may be correct, but I still look at it as a woulda, coulda, shoulda scenario. It's all about being a monday morning quarterback but unfortunately we cannot trade with hindsight.
Have a good trip!!!
I wish I remember the issue, but I beleive a couple years ago, Stocks & Commodities magazine had an article where they tried to mathematically prove that scaling out was a sub optimal strategy. Cant remember the details tho'....
I think the were talking about position trading.
Day trading is a different story, especially if you're getting member commissions.
-T
Quote from tradertony76:
I wish I remember the issue, but I beleive a couple years ago, Stocks & Commodities magazine had an article where they tried to mathematically prove that scaling out was a sub optimal strategy. Cant remember the details tho'....
I think the were talking about position trading.
Day trading is a different story, especially if you're getting member commissions.
-T
__________________
------------------------
The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
Exactly. If I go into a stock with a target of 6 and scale out at 4 and the original stock does eventually make it to 6, it was only a bad move if my next stock makes less than 2 in the same period of time it took to capture the other 2 dollars from the first stock.
Quote from illiquid:
my biggest problem for the longest time was holding my profitable positions too long -- scaling out became my remedy for that.
Quote from Buy1Sell2:
What was wrong was that your system was not defining the exit point correctly. Had that been defined correctly, you would have exited your entire position without having the retracement make you think you had to scramble to get out and save profits. Folks it's just common sense to exit the whole position for the full profit. I've been in this business for 2 and half decades--I know what I am talking about.
__________________
I'm handing you no blarney
Quote from Thunderdog:
So what you are saying is that you can determine the optimal exit point for your positions: you don't get out early, and you exit before the market retraces. Astonishing! I will admit that if I could time my exits perfectly, then I would also exit entirely at that perfect moment.
As an aside, some of the posts by those people who don't scale out seem to imply that the traders who scale out do not participate in extended moves. Am I missing something?
Quote from Buy1Sell2:
What was wrong was that your system was not defining the exit point correctly. Had that been defined correctly, you would have exited your entire position without having the retracement make you think you had to scramble to get out and save profits.
Quote from Thunderdog:
As an aside, some of the posts by those people who don't scale out seem to imply that the traders who scale out do not participate in extended moves. Am I missing something?
the don't scale-out camp has seen many, many, many of those moves get away from them ...__________________
If at first you don't succeed ...
Quote from illiquid:
In other words, learning to properly identify when "x" had already been discounted by the market.
It seems to me that the price and the velocity of the movement should dictate your action.
When trying to "can" you moves without considering price you are just asking for a time that it will NOT work and then you have to deal with managing the emotion on how well you rememebr that moment.
I have bailed out of a trade just because I do not like the way it moves. I wish I could be this sensitive always....
So scaling in or out just depends...on how price is moving.
Michael B.
Quote from JimmyJam:
On an extended range day a trader who scaled-out of their position on the first leg will miss anywhere from 66-75% (the 66% figure assumes all of the moves are relatively equal in length and duration, the 75% figure assumes the last leg is the strongest ... take a look at ES on 10/04/06 to see what I mean]) of the total profit in the trade.
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
Bingo
Quote from Thunderdog:
Let's make sure we're talking about the same thing. As I understand it, scaling out does not mean exiting a position entirely. It means reducing position size at what may or may not be an intermediate point in the move. Consequently, a fraction of the position remains to participate in any extended move that may follow. At least that is how I try to play it.
__________________
Romik
Put is this way, the reason some people scale out is the same reason some position traders don't fiddle with the intraday gyrations and pullbacks -- it's an admission of the inability to do something, namely the inabilty to tell if the next spike is the end of the move, or if the next pullback is the start of a reversal.
Can a position trader be blamed for not taking advantage of intraday moves and "trading around" a core position? Is it not "inferior" to be unable to make those extra points inbetween? Would a statement like "a position trader who can't let go and replace his position advantageously along the intraday time-frame will not maximize his total profits -- it's a given" be accurate as well?
Quote from Thunderdog:
Let's make sure we're talking about the same thing. As I understand it, scaling out does not mean exiting a position entirely. It means reducing position size at what may or may not be an intermediate point in the move. Consequently, a fraction of the position remains to participate in any extended move that may follow. At least that is how I try to play it.
Quote from GTS:
1) By scaling out you are basically breaking your strategy into two different strategies and taking the average of them. Since one of the strategies over the long term must be superior to the other, you are by definition ending up with a sub-optimal strategy (the average of the two rather than the greater of the two).
2) If you do not know whether your intermediate target or final target is the optimal point then it would benefit it you to do some analysis and figure it out and use that going forward exclusively.
3) Anyone who has done mechanical system back-testing with and without scaling out already knows that what B1S2 is saying is true the numbers dont lie.
4)...No need to be defensive about it...
__________________
I'm handing you no blarney
Quote from GTS:
I would concede that perhaps this may not apply to purely discretionary traders but is there really such a beast? How does a discretionary trader decide when that intermediate point is reached? In other words, everyone is following rules even if they arent written down or not easily articulated.
Anyone who has done mechanical system back-testing with and without scaling out already knows that what B1S2 is saying is true the numbers dont lie.
Lastly, sub-optimal isnt a dirty word. If it makes you happy or you feel more comfortable locking in partial gains so that more of your trades are winners rather than having a lot of losers and a few big winners then scaling out is for you. No need to be defensive about it a lot of trading is psychology anyway.
Excellent post, illiquid.
__________________
I'm handing you no blarney
[i]Quote from GTS:[/
Lastly, sub-optimal isnt a dirty word. If it makes you happy or you feel more comfortable locking in partial gains so that more of your trades are winners rather than having a lot of losers and a few big winners then scaling out is for you. No need to be defensive about it a lot of trading is psychology anyway. [/B]
Thunder, you beat me to it.
There's always a possibility of a wide gulf between real-time vs theoretically "optimal" and "correct", etc. It's like asking a chartist to look at a chart, and tell you what he (obviously) "would have" done, then trying to replicate the results.
But really it comes down to how much faith one has in the past in the first place, and how the past is used in one's trading. "Backtests" are inferior criteria to trade off of -- now that would be an interesting thread.
Quote from illiquid:
Nice post GTS.
I would just add that, although I agree that in general "numbers don't lie", backtests and average amounts are always moving with the next trade, and CAN lie, or at least prove deceptive.
The big mistake buy1sell2 makes is that he assumes scaling out will always prematurely exit a position, versus a full exit. This is true only in hindsight, comparing the scaled exit to an "optimal" exit. But in real-time, in real trades, scaling will sometimes keep you in the trade longer than you normally would, which is something Thunderdog alluded to. Scaling out is always inferior to the "optimal" figure, but the optimal is just a "theoretical" number -- this doesn't hold in real-time.
Say, based on backtested figures, you've found that an "optimal" target will net you 3 points on average for method X, based on a past series of trades; over the same time frame, scaling out only nets you 2. However, let's say for the next Y number of trades, the ranges widen quite a bit for method X -- scaling out leaves you in the trade longer, and therefore for those trades you've netted an average of 6, while your "optimal" exit yields just 3.5 for the new series.
Now, if you backtest with the new information you receive with the second series of trades, you will find that a new "optimal" target will net you 4.5 points, while scaling overall yields 4. The difference here is this: the 4 points on avg for scaling is an actual figure that you would have received for all trades; the 4.5 points for the "optimal" target is just a theoretical figure which has been adjusted for the new series -- you still only get 3.5 for using the "optimal" target from the first series. Optimal is only optimal in hindsight, and comes down to how quickly you can adapt that figure for incoming trades. It's quite possible that scaling out will yield a greater profit overall -- at least a profit more "reflective" of current conditions -- while an optimal figure can move quite slowly, depending on how many trades are used as history/how fast conditions have shifted.
edit: the converse example for a deteriorating method "X" would probably be more realistic and to the point -- that is, a method whose optimal target is progressively smaller. If method "X" began as a very high yield setup, say given for a high volatility market, but deteriorates as volatility contracts, you would see a far greater "real-time" difference in results between a scaled exit versus an "optimal" exit -- meaning, the prior higher "optimal" exit might yield 0 or worse, as opposed to an "updated" optimal figure.
Quote from AAAintheBeltway:
All true, but in fairness that really wasn't B1S2's argument. He said that of all your trades, some percentage would be huge winners and that your long term P/L depends on getting the most out of them. That means getting the most out of them with your full load, not a scaled back position.
Marty Schwatz' great book Pit Bull talks about how important itis to get the big moves. He said the majority of his profits came on a handful of days each year. I realize that is totally contrary to the way most daytraders have been taught to trade, ie be consistent, take quick profits, try for a high win percentage, but it sure worked for Marty.
Quote from AAAintheBeltway:
All true, but in fairness that really wasn't B1S2's argument. He said that of all your trades, some percentage would be huge winners and that your long term P/L depends on getting the most out of them. That means getting the most out of them with your full load, not a scaled back position. I am sympathetic to all the arguments in favor of scaling out, but I have to say that all my backtesting confirms exactly what he said. Your optimal strategy over time will always be to have an exit strategy that ensures you catch those big moves with a full boat.
Quote from Buy1Sell2:
Scaling out is deficient, inferior behavior on any time frame and should be avoided.
Quote from Buy1Sell2:
Scaling out is deficient, inferior behavior on any time frame and should be avoided. [/B]
__________________
Steve
Quote from Spooz Top:
b1s2.........you`re not qualified to make that determination being that you are not a successful intra day trader...........as a matter of fact ,you failed miserably in your self proffessing thread about your "epiphany" on why you stick to position trading.......because of your failure to trade intra day succesfully.
"I guess Tudor Jones's method of always letting go some of his position before the break of resistance/support, then liquidating the rest afterwards makes him deficient. "
I am out prior to resistance/support breaking nearly always. In fact, before it happens, I have usually reversed. As successful as he may be, he would be more successful removing the entire position at once if indeed he scales out. Remember, I didn't say that you couldn't make money scaling out, I simply said that it is deficient inferior behavior( sub-optimal is the word many are using here).
There is less and less difference these days between being a successful position trader and daytrader. How hard is it to just keep a position and not touch it? Not much at all. Then why not keep trading the intraday moves as well? That maximizes your profit potential -- "it's a given." In markets like SIF's and currencies, you cannot pick optimal exits for position trades if you don't pay attention intraday, so you'd be "inferior" in not trading the shorter time frame as well, no?
Can you tell us why you do not continue to daytrade, even though you are still profitable at it? Is it because you chose a psychologically more comfortable approach, over a profit-maximizing approach? Does that sound familiar?
Quote from Buy1Sell2:
"I guess Tudor Jones's method of always letting go some of his position before the break of resistance/support, then liquidating the rest afterwards makes him deficient. "
I am out prior to resistance/support breaking nearly always. In fact, before it happens, I have usually reversed. As successful as he may be, he would be more successful removing the entire position at once if indeed he scales out. Remember, I didn't say that you couldn't make money scaling out, I simply said that it is deficient inferior behavior( sub-optimal is the word many are using here).
I'd say we're all making about as much headway here as the respondents in the Intelligent Design vs. Evolution thread a while back. Guess which side I think is more steeped in dogma.
__________________
I'm handing you no blarney
Quote from illiquid:
Can you tell us why you do not continue to daytrade, even though you are still profitable at it? Is it because you chose a psychologically more comfortable approach, over a profit-maximizing approach? Does that sound familiar?
Quote from Thunderdog:
I'd say we're all making about as much headway here as the respondents in the Intelligent Design vs. Evolution thread a while back. Guess which side I think is more steeped in dogma.
__________________
If at first you don't succeed ...
Quote from Buy1Sell2:
I don't day trade because believe that while attempting to get all the fluctuations, a trader has a greater chance of missing the big picture. There are many many other reasons as I have outlined through numerous posts on the subject including commissions etc. There are more opportunites daytrading, but the significant money is in position trading ...
__________________
If at first you don't succeed ...
Quote from Buy1Sell2:
Come on folks, my portfolio is growing as I type
Quote from JimmyJam:
Right you are again B1S2, so intra-day traders only need to choose a higher time-frame and only take trades in that direction.
Regards,
JJ
Quote from Buy1Sell2:
I don't day trade because I believe that while attempting to get all the fluctuations, a trader has a greater chance of missing the big picture. There are many many other reasons as I have outlined through numerous posts on the subject including commissions etc. There are more opportunites daytrading, but the significant money is in position trading. In addition, I do agree that position trading is much more psychologically comfortable. That cannot be argued. However, it is most certainly more profitable for most traders as well (not all). I need to point out though that this a scaling out thread.
Quote from Buy1Sell2:
I would agree with you that if you are going to day trade, that it would be best to trade with the daily and weekly trend. I think that's what you are getting at?
__________________
If at first you don't succeed ...
Quote from Buy1Sell2:
I would agree with you that if you are going to day trade, that it would be best to trade with the daily and weekly trend. I think that's what you are getting at?
Quote from Buy1Sell2:
Certainly a good trader can determine optimal exit points that would occur in a super majority of the moves in a market. Yes, I am able to do that. Absolutely someone who scales out before the move is mature misses the full potential of the extended move. It goes without saying. It's a given.
Quote from traderNik:
The most interesting part of this is that a trader's best trait is flexibility. Your rigid thinking seems to indicate a mindset that may interfere with optimal decision making in this business.
Quote from Buy1Sell2:
First, let me say that I when mentioned that I was making money in my portfolio as I typed, I was initiaiting some levity and mild prodding. It was meant harmlessly as humor. Now to the above point. I was open minded during the time I was learning to trade in the eighties. For the most part, I am now extremely closed minded in my trading approach. I know what works and what doesn't. Trading is not rocket science and there is nothing tremendously new in trading ever except the technology is more advanced ie electronic exchanges etc. The reason I can be closed minded about trading is that trading is simply human behavior which is reflected in technicals and it repeats over and over and over. Human behavior/nature never changes and so I need not change my approach ever. With regard to yoru scaling out, you would be more successful without it by defining where the exit the entire position. Good trading you!
Quote from Thunderdog:
[B]1) It may be sub-optimal after the fact, but a priori? Perhaps I should consider my scaling out as a form of diversification within a single position. Diversification is, by definition, a sub-optimal strategy if you know full well in advance where specific markets are going to go. Few of us do. I am not among them. Therefore, a priori, I consider scaling out as prudent, and therefore optimal in an environment of uncertainty.
2) No amount of analysis of historical data will allow you to see the future with clarity. You either don't know, or you don't know that you don't know. Have you looked at any of the do-or-die top calling threads lately? At best, your testing will give you a hazy indication, which is hardly the stuff from which bold predictions are validly made. When you are operating in an environment of uncertainty, it pays to recognize that fact.
Quote from Malinois:
There is no such thing as a superior trading method, only superior traders using a method which works best for them. End of story....
Quote from DHOHHI:
Wrong. Or else you don't understand the definition of optimal. In my past corporate career I worked on some of the largest optimization problems that existed. Reaching an optimal solution is theoretically possible but rarely achieved in reality. A computer can crunch numbers for hours as it iterates towards the optimal solution. Typically, near optimal solutions can be achieved in much shorter periods of computer time by using some tolerance that when reached causes the ietrative process to terminate and the sub-optimal solution is deemed as "optimal". Bottom line is you, as a human, cannot know (or find) the optimal solution to any trade as there are too many variables in the solution space to model.
Another deficiency in your thinking is that if your trade doesn't hit your "supposed" optimal exit then you risk taking a loss, or having to choose to redefine your exit point, resulting is smaller profits than you initially set. Scaling in/out can exceed the profitability in many cases.
Quote from Buy1Sell2:
First, let me say that I when mentioned that I was making money in my portfolio as I typed, I was initiaiting some levity and mild prodding. It was meant harmlessly as humor.
Quote from Buy1Sell2:
For the most part, I am now extremely closed minded in my trading approach. I know what works and what doesn't.
Quote from Buy1Sell2:
Human behavior/nature never changes and so I need not change my approach ever. With regard to your scaling out, you would be more successful without it by defining where the exit the entire position.
Quote from Buy1Sell2:
This one's pretty far off topic, but someone else is welcome to respond to it.
Quote from traderNik:
For me?
I am not smart enough to define the optimal exit point before I place a trade. In my method, I need to observe price action after the trade is on and then determine the optimal course (add, remain flat or reduce, all decisions underpinned by total exposure and correlation rules). This is how I trade. I am not even smart enough to determine the optimal exit point after I enter a trade, especially if the trade is going my way, although good old S & R seems to work pretty well for this.
Quote from DHOHHI:
Not off topic at all ... you said "Certainly a good trader can determine optimal exit points" and "Yes, I am able to do that".
Consider that we trade in penny or sub-penny increments these days. Thus, the optimal exit is nearly impossible to compute ... even if you were running it on a Cray. Variables are just that and at times unpredictable. So, to suggest that a human can find such optimal points. Sure, someone can back test with some mechanical solution and compute optimal solutions. But that's after the fact ... with historical data. To be able to look into the future and calculate optimality just isn't possible.
Buysell,
You miss that there may be two "optimal areas." I used to trade the euro on 5min charts and there was a "this thrust" probable range and a "major thrust" probable range.
So, every thrust, I set half my position to exit on reaching the first target. I snugged and trailed stops for the other half. On retracements I would add another half unless the stop on the "free" part was so high that I could add still more "without risk"
This was a very workable approach to scaling out and back in. To evaluate the efficacy of such an approach I suggest treating it as two different trade setups --- evaluate each to determine whether it is worth pursuing. One has a rr in the 2:1 range with slippage and commission and a 70% win rate. The other is more like 4:1 and 45%. Trading the combination is both easy and profitable.
__________________
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The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
Quote from illiquid:
Thunder, you beat me to it.
There's always a possibility of a wide gulf between real-time vs theoretically "optimal" and "correct", etc. It's like asking a chartist to look at a chart, and tell you what he (obviously) "would have" done, then trying to replicate the results.
But really it comes down to how much faith one has in the past in the first place, and how the past is used in one's trading. "Backtests" are inferior criteria to trade off of -- now that would be an interesting thread.
__________________
"The Pursuit of Happyness" --- Chris Gardner
I hope I didnt claim that the trader can find the absolute optimal exit point (if I did that was a mistake) I agree that can only be found after the fact.
Quote from Thunderdog:
1) It may be sub-optimal after the fact, but a priori? Perhaps I should consider my scaling out as a form of diversification within a single position. Diversification is, by definition, a sub-optimal strategy if you know full well in advance where specific markets are going to go. Few of us do. I am not among them. Therefore, a priori, I consider scaling out as prudent, and therefore optimal in an environment of uncertainty.
Quote from GTS:
...you don't think past trades using that strategy are a sufficient basis for reaching an educated conclusion about which exit point tends to be better, negating the need to diversify between the two via scaling out?
__________________
I'm handing you no blarney
Quote from GTS:
I understand your point about diversification (in general) but do you really think diversification is appropriate when talking about a trades within a single strategy? E.g. you don't think past trades using that strategy are a sufficient basis for reaching an educated conclusion about which exit point tends to be better, negating the need to diversify between the two via scaling out?
I think all traders would agree that one's position size shoud reflect two things - the amount of risk one is prepared to tolerate, and the opportunity presented by the market in question. Let's assume we have decided our level of risk tolerance - the only thing then left to do is to evaluate the current risk/reward available in the trade.
If the trade is presenting a great risk reward, you should have a larger position. If the trade is good but not great, you would have an average size position. If the trade is acceptable but has some flaws (e.g. higher than normal uncertainty), then you would have a small position.
So, if we accept that position size should vary according to opportunity, "scaling out" not only makes sense, but is a requirement, in certain situations. If you have a position that started out great, but has now degraded somewhat, then you should reduce your position size. You may have started out long 20 lots, but now the risk has increased, the volatility is expanding, so the appropriate position size may only be 10 lots or even 5 lots. The expectation is still positive, but the risk is higher and/or the probability of success is lower and/or the reward has decreased.
Anyone who says position sizes should remain fixed is basically saying that all market opportunities have identical risk/reward profiles, and furthermore, that the risk/reward of a position does not change over its lifetime. I certainly don't agree with that. Look at any market and volatility fluctuates over time. If volatility increases, then other things being equal, you should reduce your position.
Thus - scaling out makes perfect sense in some cases.
Quote from Buy1Sell2:
What would perhaps make your original post somewhat on topic would be the part about defining optimal. Earlier in the thread , I mentioned that I can define the area to get out. This is what is meant here. (Someone else began using the word optimal). My main point with this thread, is that the strategy of scaling out is subpar/inferior. No one knows the exact tick of the optimal exit, only the area.
scaling out depends on where the stock is, ur timeframe, your position size vs. liquidity of the stock. ultimately, size is the most important. if take 80,000 shares of xyz, it's far superior to scale out than dump all with 800 shares at the top. even if i caught 1/4 of the overall move, i'd still make more than riding whole move with 800 shares.
depends on size vs. liquidity. portfolio managers scale in and out cos it's simply too difficult to buy or sell 1 million shares of xyz at once.
Quote from Buy1Sell2:
Little does this man realize that he would be tremendously more successful with out the scale outs.
From Lipschutz's MW interview:
"I am definitely a scale-in type of trader. I do the same thing getting out of positions. I don't say, 'Fine, I've made enough money. This is it. I'm out.' Instead, I start to lighten up as I see the fundamentals or price action changing."
Do you believe your scaling type of approach in entering and exiting positions is an essential element in your overall trading success?
"I think it has enabled me to stay with long-term winners much longer than I've seen most traders stay with their positions. I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winning trader if you're banking on being right more than 50% of the time. You have to figure out how to make money being right only 20 to 30 percent of the time."
Just one (position, fundamental/discretionary) trader's attitude for scaling, but essentially for the same reasons that some on this thread have given against it.
Both my cousins have been using scaling both in/out for almost 10 years now, in various markets. They co-own a silver mine, a commercial bank, capital management firm, partners of various business ventures in Russia and USA. No doubt a person that scales out will make less on a large move as an "inferior" approach being used, but like in any other business, some business's gross profit is 90% when others generate 70% selling almost identical products/services. Looking at just GP it is obvious that the first business's operator is more successful, though it is quite possible for both to be profitable, just on a different scale. I am OK to be using an inferior method and by doing that being branded an 'inferior' trader as long as the method is profitable, so far it has been, both in theory and in practise. It's about making money, there is no 1 formula.
__________________
Romik
Quote from Cutten:
I think all traders would agree that one's position size shoud reflect two things - the amount of risk one is prepared to tolerate, and the opportunity presented by the market in question. Let's assume we have decided our level of risk tolerance - the only thing then left to do is to evaluate the current risk/reward available in the trade.
If the trade is presenting a great risk reward, you should have a larger position. If the trade is good but not great, you would have an average size position. If the trade is acceptable but has some flaws (e.g. higher than normal uncertainty), then you would have a small position.
So, if we accept that position size should vary according to opportunity, "scaling out" not only makes sense, but is a requirement, in certain situations. If you have a position that started out great, but has now degraded somewhat, then you should reduce your position size. You may have started out long 20 lots, but now the risk has increased, the volatility is expanding, so the appropriate position size may only be 10 lots or even 5 lots. The expectation is still positive, but the risk is higher and/or the probability of success is lower and/or the reward has decreased.
Anyone who says position sizes should remain fixed is basically saying that all market opportunities have identical risk/reward profiles, and furthermore, that the risk/reward of a position does not change over its lifetime. I certainly don't agree with that. Look at any market and volatility fluctuates over time. If volatility increases, then other things being equal, you should reduce your position.
Thus - scaling out makes perfect sense in some cases.
Quote from kiwi_trader:
Buysell,
You miss that there may be two "optimal areas." I used to trade the euro on 5min charts and there was a "this thrust" probable range and a "major thrust" probable range.
So, every thrust, I set half my position to exit on reaching the first target. I snugged and trailed stops for the other half. On retracements I would add another half unless the stop on the "free" part was so high that I could add still more "without risk"
This was a very workable approach to scaling out and back in. To evaluate the efficacy of such an approach I suggest treating it as two different trade setups --- evaluate each to determine whether it is worth pursuing. One has a rr in the 2:1 range with slippage and commission and a 70% win rate. The other is more like 4:1 and 45%. Trading the combination is both easy and profitable.
Quote from romik:
being branded an 'inferior' trader as long as the method is profitable, so far it has been, both in theory and in practise. It's about making money, there is no 1 formula.
Quote from illiquid:
I Some traders have an "ironclad" strategy that they stick to no matter what; others admit to not even knowing where their exit point will be after they enter, incorporating price action and other variables on the fly. It's the latter camp which operates more comfortably in fluid or "grey zones" that seem to condone partial or staggered exits, while the former will stick to predetermined setups and expectancy, determined by long-term averages of past trades.
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
Quote from Cutten:
I think all traders would agree that one's position size shoud reflect two things - the amount of risk one is prepared to tolerate, and the opportunity presented by the market in question. Let's assume we have decided our level of risk tolerance - the only thing then left to do is to evaluate the current risk/reward available in the trade.
If the trade is presenting a great risk reward, you should have a larger position. If the trade is good but not great, you would have an average size position. If the trade is acceptable but has some flaws (e.g. higher than normal uncertainty), then you would have a small position.
So, if we accept that position size should vary according to opportunity, "scaling out" not only makes sense, but is a requirement, in certain situations. If you have a position that started out great, but has now degraded somewhat, then you should reduce your position size. You may have started out long 20 lots, but now the risk has increased, the volatility is expanding, so the appropriate position size may only be 10 lots or even 5 lots. The expectation is still positive, but the risk is higher and/or the probability of success is lower and/or the reward has decreased.
Anyone who says position sizes should remain fixed is basically saying that all market opportunities have identical risk/reward profiles, and furthermore, that the risk/reward of a position does not change over its lifetime. I certainly don't agree with that. Look at any market and volatility fluctuates over time. If volatility increases, then other things being equal, you should reduce your position.
Thus - scaling out makes perfect sense in some cases.
Seems this quote is appropriate.
The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
Someone is going to have to kill BuySell to have any hope of winning (no, strike that, finishing) the argument.
__________________
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The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
Quote from Thunderdog:
I think past trades can provide an indication or an idea, but not a straight answer. Therefore, I'm disinclined to bet entirely on a single number. And make no mistake, it is betting.
Quote from DHOHHI:
Actually one can make the case that there may be many optimal exits ... much depends on the time frame of the trade. A day trade would have a different optimal exit than a position trade where the expected time in the trade is a week for example. And so on ...
Quote from Lights:
depends on size vs. liquidity. portfolio managers scale in and out cos it's simply too difficult to buy or sell 1 million shares of xyz at once.
Quote from illiquid:
Do you believe your scaling type of approach in entering and exiting positions is an essential element in your overall trading success?
"I think it has enabled me to stay with long-term winners much longer than I've seen most traders stay with their positions. I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winning trader if you're banking on being right more than 50% of the time. You have to figure out how to make money being right only 20 to 30 percent of the time."
Quote from Buy1Sell2:
No. I am in the latter camp and don't scale out. I let the market tell me when to get out, although I have a general idea of how far a market should run when I enter the trade. As the trade gets more long in the tooth, I pay more and more attention to market action for reversal.
Quote from illiquid:
But then again, it wouldn't have gotten me to think through the issue to the point where I'm thoroughly convinced of the answer. Yep, I think I'm gonna go with Lipschutz on this one, nothing personal.
Quote from Buy1Sell2:
Huh? He makes a great argument for NOT scaling out right after he said he scales out. He is not letting profits run. I believe he has too large of a position on and gets frightened. Why else would he get out of some and choke the trade off? Remind me not to read anything by or about him in the future--- Absolutely Ridiculous!
Quote from illiquid:
You don't get it, he is already letting his profits run, and likely holding the position far longer than you ever would. That much is a given.
Quote from Buy1Sell2:
He is wrong.
Quote from Buy1Sell2:
No Sir. ---No matter what the position size is at the beginning, the trade should be allowed to mature fully. Why would you get out of a winner unless the initial position size was overextended?? Scaling out when overextended is the only time that scaling out should be used. And it is used then, because you have realized that a mistake was made on size initially and you are fortunate enough to escape with some profits. If the size is correct at the start, then scaling out is middle to lower rung behavior.
Quote from jem:
Now I know you are just pulling peoples chains. Your pejoratively labled "over extended" has reduced this to a semantic argument.
By the way good daytraders in liquid stocks with insulated assets, trade at prop firms and purposely put on trades that are too large and scale out quickly.
It is the best daytrading strategy if you have a high percentage of winners.
Quote from illiquid:
Sorry if I take his word over yours, I think he's probably got a bit more experience on this sort of thing than you. Just my guess, who knows.
Quote from Buy1Sell2:
I do get it. He is not letting al his profits run. He is a fundamental trader and so should scale in as I do even though I am technical trader. However, I would very much doubt that he holds winning positions longer than I do.
Quote from illiquid:
A technical trader? Then trust me, you would be out sooner in the fx market.
So you trade technically off the monthly charts in the forex markets? Well, it does sound like you are doing the right thing in limiting yourself to as few decisions as possible.
All right, enough's enough, I'm off to bed. Night!
Quote from illiquid:
So you trade technically off the monthly charts in the forex markets? Well, it does sound like you are doing the right thing in limiting yourself to as few decisions as possible.
All right, enough's enough, I'm off to bed. Night!
http://www.elitetrader.com/vb/showt...r&pagenumber=92
Quote from Buy1Sell2:
As a position trader though, I stay with my original premise and just stay short. We weather the bounces and let the trade run. If I see an obvious bullish divergence on hourly charts, I may consider taking profits and reentering at a higher price, but it needs to be very very obvious.
Quote from Buy1Sell2:
No Sir. ---No matter what the position size is at the beginning, the trade should be allowed to mature fully. Why would you get out of a winner unless the initial position size was overextended?? Scaling out when overextended is the only time that scaling out should be used. And it is used then, because you have realized that a mistake was made on size initially and you are fortunate enough to escape with some profits. If the size is correct at the start, then scaling out is middle to lower rung behavior.
__________________
"The Pursuit of Happyness" --- Chris Gardner
Quote from Buy1Sell2:
No Sir. ---No matter what the position size is at the beginning, the trade should be allowed to mature fully. Why would you get out of a winner unless the initial position size was overextended?? Scaling out when overextended is the only time that scaling out should be used. And it is used then, because you have realized that a mistake was made on size initially and you are fortunate enough to escape with some profits. If the size is correct at the start, then scaling out is middle to lower rung behavior.
Quote from GTS:
I was trying to allude to the fact that the person that scales out has already chosen two different exit points (mid-point and final point) and one of them is clearly superior to the other and that that trader should learn over time which one is better and then going forward exit the full position at that point (which ever one turns out to be more profitable overall).
Quote from OddTrader:
http://www.elitetrader.com/vb/showt...r&pagenumber=92
Taking profits!
http://www.elitetrader.com/vb/showt...6&pagenumber=29
Quote from illiquid:
From Lipschutz's MW interview:
"I am definitely a scale-in type of trader. I do the same thing getting out of positions. I don't say, 'Fine, I've made enough money. This is it. I'm out.' Instead, I start to lighten up as I see the fundamentals or price action changing."
Quote from Cutten:
Your initial position size was fine. The market goes your way, you make a nice profit. However, the market condition then has a change - volatility increases significantly, whilst the expected reward on the trade does not. Given that volatility has increased significantly, your risk is now much higher - beyond your risk tolerance levels. In order to keep your risk within acceptable limits, you must reduce the size of your position. Thus, you sell some of your position, taking profits, whilst leaving on a position size appropriate for the new, much higher, level of risk.
Quote from Cutten:
What is the basis for your claim that "one of them is clearly superior to the other"? Isn't it quite possible that the optimal position size up to exit point 1 is to have a fully margined long position; but that between exit point 1 and exit point 2, the optimal position is to be long but with a smaller more conservative position?
For example, you may have a stock in a slow steady uptrend with minimal retracements, the stock is continually ignoring bad news and responding well to good news, the stock inches up on down market days, and is up 3-4% on up market days. You identify this as powerfully bullish behaviour and get long on margin. Later on, the stock is getting close to its earnings release, and the price movement becomes a bit more volatile as people try to decide what is likely to happen with the earnings. Normally, you never hold a really big position going into an earnings release - yet this stock is now your #1 holding by size due to the large capital appreciation.
So, do you expose yourself to the risk of a huge one day drawdown in your portfolio, if the reaction to earnings is negative - thus violating one of your cardinal trading rules? Do you completely get out of the stock, even though your analysis & expectation is still bullish - thus giving up on a probable profit? Or do you accept that, whilst still a good position, the risk has increased noticeably, and therefore put on a position size appropriate to that new reality?
According to you, one "exit point" is clearly superior to the other. You are therefore claiming that taking on insane levels of risk, or passing up an expected profit, are superior to taking on a sensible level of risk and exploiting a profitable opportunity. How can you justify such a view?
Oh, and this idea that "scaling out" results in less profit is simply because *taking more risk* results in more profit - when you are right. Of course, that also means you lose more when you are wrong.
Holding a full size position right until the moment the profit expectation actually goes negative will make more money if you *if* you are right. However, you will not make more money, RELATIVE TO THE RISK that you took. When you get it wrong (which will be much more often, since you are holding right to the very end) you will take a huge hit. People who scale out will take a relatively small hit. They will have a much smoother equity curve.
This will, in turn, allow them to trade more size overall. Their drawdowns are far less, so their overall size can be higher than yours. While you are swinging 10 lots on each position, and exiting completely, they can have 20 lots on during the meat of the move, and then scale down to 5. towards the end Over time, their greater size during the bulk of the move, combined with their smaller drawdowns at reversal points, will mean they significantly outperform you.
This is another typical oversight from the "all or nothing" brigade. Because they think in terms of entry and exit, rather than ongoing market exposure, they make position-sizing mistakes at the beginning, middle, and end of any market move.
Quote from Buy1Sell2:
If you are in a winner, it is impossible for risk on the trade to increase. If the trade is lowering it's expectation due to market activity, it is time to exit the whole position,m not part of it. I understood your post very clearly. My point is clear as well. Profits should run until a signal that must be taken for the full position.
Quote from Buy1Sell2:
Yes--the full position. Not scaling out.
__________________
"The Pursuit of Happyness" --- Chris Gardner
Quote from Cutten:
Oh, and this idea that "scaling out" results in less profit is simply because *taking more risk* results in more profit - when you are right. Of course, that also means you lose more when you are wrong.
Holding a full size position right until the moment the profit expectation actually goes negative will make more money if you *if* you are right. However, you will not make more money, RELATIVE TO THE RISK that you took. When you get it wrong (which will be much more often, since you are holding right to the very end) you will take a huge hit. People who scale out will take a relatively small hit. They will have a much smoother equity curve.
This will, in turn, allow them to trade more size overall. Their drawdowns are far less, so their overall size can be higher than yours. While you are swinging 10 lots on each position, and exiting completely, they can have 20 lots on during the meat of the move, and then scale down to 5. towards the end Over time, their greater size during the bulk of the move, combined with their smaller drawdowns at reversal points, will mean they significantly outperform you.
This is another typical oversight from the "all or nothing" brigade. Because they think in terms of entry and exit, rather than ongoing market exposure, they make position-sizing mistakes at the beginning, middle, and end of any market move.
Quote from Buy1Sell2:
The entire position should be exited, not part of it. It is very obvious common sense to an experienced trader that if the trade still looks good, you stay in fully. If it looks iffy or if there is question about it, you get out fully. By gambling and staying with a smaller position, you are gambling on the future with the old idea of "playing with the house's money" which is extremely flawed.
Quote from OddTrader:
I think you clearly missed the point.
When you base on a shorter timeframe for re-entering (and/ or exit), technically speaking, you are actually doing scaling-out that you weren't even aware of by yourself.
Q
Quote from Buy1Sell2:
As a position trader though, I stay with my original premise and just stay short. We weather the bounces and let the trade run. If I see an obvious bullish divergence on hourly charts, I may consider taking profits and reentering at a higher price, but it needs to be very very obvious.
UQ
Quote from Cutten:
Why should one have on identical size for a great trade, as opposed to a merely good one? Let's take an example:
Quote from OddTrader:
I think you clearly missed the point.
When you base on a shorter timeframe for re-entering (and/ or exit), technically speaking, you are actually doing scaling-out that you weren't even aware of by yourself.
Q
Quote from Buy1Sell2:
As a position trader though, I stay with my original premise and just stay short. We weather the bounces and let the trade run. If I see an obvious bullish divergence on hourly charts, I may consider taking profits and reentering at a higher price, but it needs to be very very obvious.
UQ
Quote from Cutten:
So, please explain to me how it would be different in the market. If you still have a profitable opportunity, albeit not as good as when you first put on the position, why wouldn't you take it?
Quote from OddTrader:
I think you clearly missed the point.
When you base on a shorter timeframe for re-entering (and/ or exit), technically speaking, you are actually doing scaling-out that you weren't even aware of by yourself.
Q
Quote from Buy1Sell2:
As a position trader though, I stay with my original premise and just stay short. We weather the bounces and let the trade run. If I see an obvious bullish divergence on hourly charts, I may consider taking profits and reentering at a higher price, but it needs to be very very obvious.
UQ
__________________
"The Pursuit of Happyness" --- Chris Gardner
Quote from OddTrader:
You say you're a position trader, but your changes for position trades are based on hourly decisions.
Technically speaking, you're not a position trader as you claimed yourself (that again you are not aware of), and you actually use scaling out for exits. - both are your fautly logics.
Quote from Buy1Sell2:
I never said one should have an identical size for a trade. I only said it should all be exited at once.
Quote from Cutten:
Exactly. Buy1Sell2 is being a hypocrite here - he admits to taking profits when the risk/reward deteriorates ("If I see an obvious bullish divergence on hourly charts, I may consider taking profits..."), which is exactly what I am advocating. But when someone else suggests exactly this, he says its an inferior method. This is an absurd self-contradiction.
He preaches one behaviour, practises another, and then tries to criticise people who advocate doing exactly what he said he does.
Quote from Buy1Sell2:
No. I am combining the daily chart with the hourly in this example. I provide some shorter term analysis for readers who are shorter term traders in an effort to help if them and cultivate conversation. The problem with communicating on Elite Trader is that the vast majority of traders here are failed day traders. So, I provide some shorter term stuff. I am here to help and share the knowledge that I have gained over nearly 26 years of trading. The ES Journal was entirely designed as a course in why not to day trade, exposing the frantic thought patterns of a daytrader and how ridiculous they sound out loud, while slowing gravitating to position trading which as you can see from the journal, is the place to be.
__________________
"The Pursuit of Happyness" --- Chris Gardner
Quote from Buy1Sell2:
Exit the whole position. Your money can be better used in a trade that has better expectation. Static analysis is not good.
Quote from Cutten:
Exactly. Buy1Sell2 is being a hypocrite here - he admits to taking profits when the risk/reward deteriorates ("If I see an obvious bullish divergence on hourly charts, I may consider taking profits..."), which is exactly what I am advocating. But when someone else suggests exactly this, he says its an inferior method. This is an absurd self-contradiction.
He preaches one behaviour, practises another, and then tries to criticise people who advocate doing exactly what he said he does.
__________________
"The Pursuit of Happyness" --- Chris Gardner
Quote from Buy1Sell2:
Position trader yes--- Aware of what I do--yes. Very profitable--yes. Teacher--yes.
__________________
"The Pursuit of Happyness" --- Chris Gardner
Quote from Buy1Sell2:
If I were to exit, I would take the full position, not scaling out. Sorry guys, you have missed the boat. I've got my new airplane I need to go test, I'll be back later and may respond if I see something worthy. Thanks guys!
Cutten, you need to calm down B1's method of 'all out' is not suitable to a lot of traders for various reasons especially intraday based, one of them is a trader's ability to find a good entry point, though uncertainty about where to exit, therefore a scale out is being used, partial closure warrants locked profits with exit at entry, etc. B1 is simply saying that a strategy that halves a potential profit though keeps a loss at 100% position size is a flawed "inferior" way to trade. I both agree and disagree with his statement. it's certainly is not an easy debate as all discussions have to be relative to a specific situation, not to multiple/different methodologies. What B1 does, he does very well, intraday high leveraged position trades would be very difficult to achieve using 'all out' method, unless profit target is relatively tight and/or trailing stop used. IMHO.
__________________
Romik
I'm going to scale out of my reading of this thread, and only read the posters who have usefull things to say.
Quote from fhl:
I'm going to scale out of my reading of this thread, and only read the posters who have usefull things to say.
__________________
I'm handing you no blarney
You guys should take it easy on B1, he is one trader that brings more quality info than 90% of ET 50000+ members. Anybody that has followed his posts would agree. Just because there is no agreement on this issue does not justify inappropriate personal branding.
__________________
Romik
this poll on scaling as well as most polls on ET might have given different results if it was limited to traders with incomes 0f 100K/yr. for the last 2+yrs.
Since b1s2 advocates trading the longer term, risking 2% on any given trade idea -- it's really no wonder that he doesn't condone scaling, there's basically no room for it. When trading such long time frames, you will need to have stops that are quite wide, and to limit your losses to 2% it means your position size relative to your account size will be much smaller than a shorter-term trader. To let go of a good trade even partially prematurely is very costly in this scenario.
What he is missing here in his personal disdain for short-term trading is that one can take much larger positions with tigher stops on the shorter time frame; for every 1 contract b1s2 takes, the shorter-term trader given the same size account will probably be comfortable with 5. What we've been trying to convince him of is that if both traders decide to take positions at the same time in the same direction, the shorter-term trader always has the option of holding for a longer term position, by scaling out of his "short-term" size, and reducing into a position size more commensurate for a longer term trade -- thus, in this case, "scaling out" helps keep him in the position longer, and it's a "given" who makes more money here.
It might just be a matter of perspective for when scaling is appropriate, but compared to the longer-term trader who cannot handle the shorter-term as well and must stick to that smaller position size to maintain his 2% loss limit -- well, it's quite obvious what is actually the inferior case here. So consider yourself right for your own trading purposes, but if you're going to use the label "inferior" on anything, you might want to start with your own forehead.
Quote from romik:
You guys should take it easy on B1, he is one trader that brings more quality info than 90% of ET 50000+ members. Anybody that has followed his posts would agree. Just because there is no agreement on this issue does not justify inappropriate personal branding.
__________________
I'm handing you no blarney
Quote from Thunderdog:
Actually, I think that B1S2 wants you to stop reading his posts all at once. Any other decision would clearly be inferior.
Quote from romik:
You guys should take it easy on B1, he is one trader that brings more quality info than 90% of ET 50000+ members. Anybody that has followed his posts would agree. Just because there is no agreement on this issue does not justify inappropriate personal branding.
Quote from illiquid:
Since b1s2 advocates trading the longer term, risking 2% on any given trade idea -- it's really no wonder that he doesn't condone scaling, there's basically no room for it. When trading such long time frames, you will need to have stops that are quite wide, and to limit your losses to 2% it means your position size relative to your account size will be much smaller than a shorter-term trader. To let go of a good trade even partially prematurely is very costly in this scenario.
What he is missing here in his personal disdain for short-term trading is that one can take much larger positions with tigher stops on the shorter time frame; for every 1 contract b1s2 takes, the shorter-term trader given the same size account will probably be comfortable with 5. What we've been trying to convince him of is that if both traders decide to take positions at the same time in the same direction, the shorter-term trader always has the option of holding for a longer term position, by scaling out of his "short-term" size, and reducing into a position size more commensurate for a longer term trade -- thus, in this case, "scaling out" helps keep him in the position longer, and it's a "given" who makes more money here.
It might just be a matter of perspective for when scaling is appropriate, but compared to the longer-term trader who cannot handle the shorter-term as well and must stick to that smaller position size to maintain his 2% loss limit -- well, it's quite obvious what is actually the inferior case here. So consider yourself right for your own trading purposes, but if you're going to use the label "inferior" on anything, you might want to start with your own forehead.
Do you believe that scaling in is inferior also B1S2 ?
Quote from volente_00:
Do you believe that scaling in is inferior also B1S2 ?
Here is my arguement, you say you miss the meat of the profit when you scale out, what are you missing when you are right about the move but only scale in buying 2 instead of 20 at the very start of the trade ? BTW aren't all of your trades hedged with options ?
Quote from Cutten:
I call BS. I would be highly surprised if you were in fact a profitable trader. I think it's much more likely that you are a fake and a liar.
Quote from volente_00:
Here is my arguement, you say you miss the meat of the profit when you scale out, what are you missing when you are right about the move but only scale in buying 2 instead of 20 at the very start of the trade ? BTW aren't all of your trades hedged with options ?
I scale out sometimes for the very same reason you scale in. We are truly guessing when it comes to entry and exit , we don't know 100% that the move will continue while we are in the trade. I can pull 2 point trades out of ES all day long but when I don't sell half at 2 points and move the stop to either break even I am violating my rule of letting a winner turn into a loser. I can tell you I have left far more money on the table exiting all at once than scaling out and letting the trade run on the rest. I actually think anyone trading futures should start with 2 contracts. One of the main reasons people fail at trading is because they don't know how to let their winners run. When you have 2 contracts you can sell 1 at 2 point profit, set it to BE and if the move continues that is great, if it retraces back then you still made money on the trade but at least it lets you satisfy the internal struggle between fear and greed without affecting your profitability.
Quote from volente_00:
I scale out sometimes for the very same reason you scale in. We are truly guessing when it comes to entry and exit , we don't know 100% that the move will continue while we are in the trade. I can pull 2 point trades out of ES all day long but when I don't sell half at 2 points and move the stop to either break even I am violating my rule of letting a winner turn into a loser. I can tell you I have left far more money on the table exiting all at once than scaling out and letting the trade run on the rest. I actually think anyone trading futures should start with 2 contracts. One of the main reasons people fail at trading is because they don't know how to let their winners run. When you have 2 contracts you can sell 1 at 2 point profit, set it to BE and if the move continues that is great, if it retraces back then you still made money on the trade but at least it lets you satisfy the internal struggle between fear and greed without affecting your profitability.
Quote from OddTrader:
Snail oil --- Yes!
__________________
If at first you don't succeed ...
Thanks JJ! I really have no reason to put things on here except to help a person or two--and of course to get a feel of what others think.
Quote from Buy1Sell2:
Playing to not lose instead of playing to win.
Quote from volente_00:
The two are the same.
B1S2, not that it was intentional, but the problem with your first post is you come off as arrogant implying that your way is the only way to trade. I think this is why got people offended.
if you are not losing then what are you doing ?
Quote from Cutten:
I call BS. I would be highly surprised if you were in fact a profitable trader. I think it's much more likely that you are a fake and a liar.
__________________
If at first you don't succeed ...
Quote from Buy1Sell2:
My assertion that scaling out is deficient doesn't have anything to do with whether or not I like short term trading. I am saying that no matter what time frame is traded, 1 minute or 10 years, scaling out is inferior. You have missed the whole point.
Quote from volente_00:
The two are the same.
__________________
If at first you don't succeed ...
I'm always playing to win, that is why I scale out instead of giving the winner a chance of turning into a loser by letting greed tell me to hold on to the full position and see if it will run more.
Quote from illiquid:
No I haven't. You are only thinking in one trade, one time frame at a time. For others who just trade markets, not time frames, adjusting your targets/size as market elements evolve is critical. You gave the statement that scaling is inferior in any time frame -- I repsonded that for those of us who trade across multiple time frames, scaling is an important part of controlling risk. I understand your point, and it is rather simplistic, as you have stated before. But if you want to be a bit more ambitious in the markets you trade, you should be able to step up to a more fluid way of thinking.
You don't scale because, given your parameters and length of projected holding time, it would be disadvantageous on all angles; I am not in disagreement here. Just don't project this limitation on others, who have no problem putting up larger size when a tight stop allows, and then gradually easing down as a proper stop point gets further and further away, or if a shorter-time frame target has been achieved. See, the difference here is, some don't think in terms of where their entries are, because that has no bearing on what the market will do in the future. Instead, some are always thinking about where the risk on the position is now -- e.g. on a daily time frame, they are always long/short from the current day's open -- their entry in the past has no bearing on their thinking ("I have 50 ticks open profit so I sit through a drawdown" etc). So risk can always increase, even in a "winning" position, because some don't consider any difference between open or closed profits. This is about the last of what I have to say on this topic, so if you continue to feel I've missed the whole point, well it's moot in any case.
It occurs to me that without a good simulation run across various markets looking at strict criteria for:
a) holding a trade or;
b) scaling-out
We will not be able to quantitatively see the truth or falseness of the statement. While very good arguements can be made for either case, you actually must at least run a backtest using fixed criteria to see what happens.
Does anyone have access to software that can do this?
I don't.
Regards,
Jimmy
__________________
If at first you don't succeed ...
Quote from Buy1Sell2:
............... I have not had a losing option trade since the 1992 Soybean market..................................
Quote from JimmyJam:
Disagree with the man's philosophy, sure.
But don't insult his trading, I've seen him make real-time calls in multiple instruements across all of the major asset classes:
Financial Indicies
Curriencies
Agriculture , etc.
I'm sure he trades quite a few more than what I've listed, those are just the categories in which I've lurked and seen him make the calls. Whatever he is doing, it works for anything that leaves an OHLC.
Can I say the same? Can you? In fact, how many on here can, for that matter?(um, that falls under the category of rhetorical).
No, he defiitely isn't snak oil.
Regards,
Jimmy
__________________
"The Pursuit of Happyness" --- Chris Gardner
Quote from volente_00:
Trading is like playing poker, you have to raise the stakes when the oddsare in your favor, watch on tv, they do not bet the same amount over and over and end up winning.
Quote from volente_00:
Trading is like playing poker, you have to raise the stakes when the oddsare in your favor, watch on tv, they do not bet the same amount over and over and end up winning.
Quote from Buy1Sell2:
No my trades are not all hedged with options until I feel we are nearing a top. As a market climbs I begin scaling in call option sales well out of the money. When the market is near the top, I will be fully hedged. I have not had a losing option trade since the 1992 Soybean market. As far as the scaling in goes, the move seldom(and I mean very seldom) takes off without me. If it does, I go full bore at that time. Very few times that this happens.
__________________
"The Pursuit of Happyness" --- Chris Gardner
Could you elaborate on your second point pls? Like for example, which method do you then think is best suited for intraday trading, etc...?
Thanks !
Quote from ForrestGump:
LOL, have you put on a trade since then? (just kidding)
I would like to point out here that what B1S2 is advocating is the time-tested 'classical' method of trading commodity futures on longer timeframes. The very famous "Turtle" trading rules - developed by the legendary Richard Dennis - use precisely this strategy. Entries are always scaled-in while exits are NEVER scaled-out.
Like B1S2, I too have been trading for a very long time and find this strategy to be excellent on longer timeframes. I have also been day-trading index futures for nearly ten years now. In that intra-day timeframe, it is not very difficult to out-perform this type of strategy.
Happy trading folks
Quote from JimmyJam:
We will not be able to quantitatively see the truth or falseness of the statement. While very good arguements can be made for either case, you actually must at least run a backtest using fixed criteria to see what happens.
Quote from OddTrader:
Looks like you must know how to sell snail oil very well.
__________________
If at first you don't succeed ...
Quote from illiquid:
http://www.elitetrader.com/vb/showt...&postid=1238772
We've already discussed the fact that scaling can outperform any backtested "optimal" exit, especially given rapidly changing market conditions. A backtest will always reveal an "optimal" exit that is by definition better than scaling out -- but in real time this doesn't play out.
__________________
If at first you don't succeed ...
Go knock yourself out -- it's kinda obvious neither side is going to get swayed no matter what you come up with. It's too bad we don't make money on the past, eh?
Quote from illiquid:
Go knock yourself out -- it's kinda obvious neither side is going to get swayed no matter what you come up with.
It's too bad we don't make money on the past, eh?
__________________
If at first you don't succeed ...
Quote from JimmyJam:
The markets constantly repeat themselves, the thing is, they don't do it in the exact way or with the same amplitude as they have in the past, so with good position sizing and money management, I believe this one IS possible.
Wow... y'all covered a lot of ground here while I slogged thru the wetlands around the U.S. Army's 10th Mountain Division playground last weekend.
Permit me to add some tidbits specific to emini futures trading and trade management there, using a live example from today:
I bought the ES at 1378.75 just above its daily pivot point. Initial stop is always -2pts from fill, or 1376.75
The trade went to 1380.75 and I moved my stop to entry/par
The trade then proceeded to 1381.75 and I moved my stop to 1379.75 for +1pt locked in
The trade then went to 1383.00 and I moved stop to 1381.75 for +3pt locked in.
Price action pulled back from there, and I exited for +3pts. The one tick above +4pts unrealized happened before I could trail to +4pts... had 1383.25 or higher printed, trailed stop would have gone to 1383.75 asap
*
My style of trading hunts for directional swings or trend moves intraday. I take a modest number of trades that either stop out for -2pts or smaller loss. I take a greater number of trades that only go +2pts (or less) in favor and stop out on a trailed stop for par.
Both of those scenarios are managed as capital preservation situations, not attempted to be milked for paltry profits.
The remaining ES trades work for +2pt, +3pt, +4pt, +6pt and even +8pt intraday gains. It is that specific part of the yield curve where my edge exists. Those are the trades necessary to make my account grow beyond breakeven over the course of time.
These type of intraday sized price swings are present almost every session... anyone can see that at a glance. Knowing they exist, trusting they will always exist AND deliberately seeking them is the style I trade.
With that in mind, it makes absolutely no sense to scale out of any trade in a hurry. Trade management of the immediate losers and nil gainers stopped at par is already maxed for that aspect. A directional trader's focus must then be pointed towards riding out the inevitable winners which abundantly exist in opportunity more days than not.
**
If my style were fighting the trend, i.e. always seeking long pops in a downtrend or pullbacks short in an uptrend, scaling out might make sense. With limited profit potential and outsized loss potential while fighting directional moves, hasty exists are needed.
But... when following directional swings or trends, our expectation is for the trend to continue on every trade. There is no good reason to exit trades early in this case... longs yesterday (Monday) morning proved that. Price action in the ES blew thru all manner of "resistance" where fade traders shorted and got eaten alive.
Directional traders who bought S1, the daily pivot or other points of buy signals on an ES chart had lots of real estate to capture in their favor. Exiting any long trade then (or today) on a partial close in any attempt to curtail potential loss only managed to curtail potential profits.
***
Bottom line? Some reversal traders fight market direction and may have more need to exit hastily than directional traders who purposely seek the frequent, large-range directional swings.
Different trade expectations mandate different trade management tactics, imo
Quote from OddTrader:
PS: If you're so sure about the final top you say for "Fully Hedged", you really don't need any options or hedging in your trading at all.
__________________
I'm handing you no blarney
Quote from JimmyJam:
Disagree with the man's philosophy, sure.
But don't insult his trading, I've seen him make real-time calls in multiple instruements across all of the major asset classes...
__________________
I'm handing you no blarney
Quote from austinp:
Wow... y'all covered a lot of ground here while I slogged thru the wetlands around the U.S. Army's 10th Mountain Division playground last weekend.
Permit me to add some tidbits specific to emini futures trading and trade management there, using a live example from today:
I bought the ES at 1378.75 just above its daily pivot point. Initial stop is always -2pts from fill, or 1376.75
The trade went to 1380.75 and I moved my stop to entry/par
The trade then proceeded to 1381.75 and I moved my stop to 1379.75 for +1pt locked in
The trade then went to 1383.00 and I moved stop to 1381.75 for +3pt locked in.
Price action pulled back from there, and I exited for +3pts. The one tick above +4pts unrealized happened before I could trail to +4pts... had 1383.25 or higher printed, trailed stop would have gone to 1383.75 asap
*
My style of trading hunts for directional swings or trend moves intraday. I take a modest number of trades that either stop out for -2pts or smaller loss. I take a greater number of trades that only go +2pts (or less) in favor and stop out on a trailed stop for par.
Both of those scenarios are managed as capital preservation situations, not attempted to be milked for paltry profits.
The remaining ES trades work for +2pt, +3pt, +4pt, +6pt and even +8pt intraday gains. It is that specific part of the yield curve where my edge exists. Those are the trades necessary to make my account grow beyond breakeven over the course of time.
These type of intraday sized price swings are present almost every session... anyone can see that at a glance. Knowing they exist, trusting they will always exist AND deliberately seeking them is the style I trade.
With that in mind, it makes absolutely no sense to scale out of any trade in a hurry. Trade management of the immediate losers and nil gainers stopped at par is already maxed for that aspect. A directional trader's focus must then be pointed towards riding out the inevitable winners which abundantly exist in opportunity more days than not.
**
If my style were fighting the trend, i.e. always seeking long pops in a downtrend or pullbacks short in an uptrend, scaling out might make sense. With limited profit potential and outsized loss potential while fighting directional moves, hasty exists are needed.
But... when following directional swings or trends, our expectation is for the trend to continue on every trade. There is no good reason to exit trades early in this case... longs yesterday (Monday) morning proved that. Price action in the ES blew thru all manner of "resistance" where fade traders shorted and got eaten alive.
Directional traders who bought S1, the daily pivot or other points of buy signals on an ES chart had lots of real estate to capture in their favor. Exiting any long trade then (or today) on a partial close in any attempt to curtail potential loss only managed to curtail potential profits.
***
Bottom line? Some reversal traders fight market direction and may have more need to exit hastily than directional traders who purposely seek the frequent, large-range directional swings.
Different trade expectations mandate different trade management tactics, imo
Quote from Thunderdog:
Some of you folks here may know a lot more about trading than I do, but I do know this: when someone tells you that there is a one-size-fits-all method of trading, and that it is superior to all other forms of trading at all times and under any circumstances, then you are dealing with either the messiah or a fool. You decide.
"In times where volatility is limited you might do better depending on the exit criteria for the scaling technique. Some sort of volatility switch between the two techniques might optimize the results a bit.
In any event, as long as you get direction more right than wrong there should be some positive expectancy with reasonable volatility. What kind of sharpe ratio or profit factor do you get on this approach?"
SS, that's an excellent question. The answer would differ and require pages to cover in justice, depending on the timeframe of data sample in question.
During periods of normal to high volatility and price range, profit factors are better than 3/1. Periods of low volatility and price range quell results to lower expectancy degrees.
Over the course of time, I attempt to trade directional action i.e. normal to high volatility and ranges more aggressively and dabble during sessions like today, Thu - Fri last week.
Profit opportunity runs in stages, of course. Accepting that reality and focusing on catching the directional swings keeps overall return % at or above 2 Sharpe. Not an easy task when trades are limited to intraday, especially in the ES.
*
Basic human nature assumes focus on managing the losing trades better = optimal results in the end. In reality, managing the winners better and shrugging off the losing trades as nothing more than non-performing acts is what makes the big difference for my style.
Said another way, focus on letting profits run and expecting every trade to perform adequately results in many of them I have (emotional) doubts about surprising me to the upside.
I see a lot, maybe most emini traders fixated on turning small losses into small wins. Depending on the style of trading, letting small losses be that and fixating on managing the performing trades better = much greater profit realization in the end.
Quote from austinp:
"In times where volatility is limited you might do better depending on the exit criteria for the scaling technique. Some sort of volatility switch between the two techniques might optimize the results a bit.
In any event, as long as you get direction more right than wrong there should be some positive expectancy with reasonable volatility. What kind of sharpe ratio or profit factor do you get on this approach?"
SS, that's an excellent question. The answer would differ and require pages to cover in justice, depending on the timeframe of data sample in question.
During periods of normal to high volatility and price range, profit factors are better than 3/1. Periods of low volatility and price range quell results to lower expectancy degrees.
Over the course of time, I attempt to trade directional action i.e. normal to high volatility and ranges more aggressively and dabble during sessions like today, Thu - Fri last week.
Profit opportunity runs in stages, of course. Accepting that reality and focusing on catching the directional swings keeps overall return % at or above 2 Sharpe. Not an easy task when trades are limited to intraday, especially in the ES.
*
Basic human nature assumes focus on managing the losing trades better = optimal results in the end. In reality, managing the winners better and shrugging off the losing trades as nothing more than non-performing acts is what makes the big difference for my style.
Said another way, focus on letting profits run and expecting every trade to perform adequately results in many of them I have (emotional) doubts about surprising me to the upside.
I see a lot, maybe most emini traders fixated on turning small losses into small wins. Depending on the style of trading, letting small losses be that and fixating on managing the performing trades better = much greater profit realization in the end.
Quote from Thunderdog:
Apples and oranges. This thread is not so much about making calls as it is about trade management. Try not to confuse the two. (Besides, I don't follow anyone's calls, so I'll have to take your word for it.)
Some of you folks here may know a lot more about trading than I do, but I do know this: when someone tells you that there is a one-size-fits-all method of trading, and that it is superior to all other forms of trading at all times and under any circumstances, then you are dealing with either the messiah or a fool. You decide.
__________________
If at first you don't succeed ...
Quote from JimmyJam:
Kinda extreme, wouldn't you say?
__________________
I'm handing you no blarney
"I'm actually quite surprised by those results. You must have some pretty solid techniques for determining entry points and keeping your system out of chop periods."
I rely on a filter chart setup (13min or similar) to show when price action is probable to go higher, lower or currently in flux. Using that filter chart itself for signals and/or shorter timeframe keeps me on the correct side of market action far more often than not.
Here's the tough part: sitting idle when chart signals are not clearly aligned. No method known to man can identify all viable trades... sometimes the biggest moves of a day cannot be seen.
It is the sitting idle (patience) part that makes most of the money by staying out of marginal trading conditions. THAT is the eternal struggle most traders (including myself) face: accepting the fact that we can only "see" some and not all of the potential profits in a chart.
*
Here's a rhetorical question: how many times has anyone here taken 8 - 12 turns or more intraday? How many times was the first or second trade near the top/bottom for that day? How would your results have fared had you held all contracts longer than you'd dare to bear?
The answer to that question will tell on an individual basis whether one is best to keep doing what they're doing, or strongly consider trading less and holding on longer. Studying individual price action results (both realized and potential) after each trade tells us where to optimize the averaged exits, and how.
Quote from optionpro007:
Could you elaborate on your second point pls? Like for example, which method do you then think is best suited for intraday trading, etc...?
Thanks !
Thank you Mr. Gump for your detailed reply. Very interesting. I am sure many intraday traders here appreciate your comments.
Best of luck to you too. =)
Quote from ForrestGump:
optionpro007,
For intraday trading of index futures, I think the question of whether to scale out is not the right question to begin your inquiry with. It is not a trivial question but it IS like putting the cart before the horse. IMO, the most important skill for this type of trading is the ability to characterize the market. Once you learn to do that with consistency and confidence, the rest of the mechanics of trade management fall into place.
What do I mean by characterizing the market? It is simply being able to determine its trendiness (or flatness) within a probabilistic framework. Being a discretionary trader, I do it simply by looking at the charts. I know a couple of good traders who do it using statistical methods. I suppose there are probably other good ways of doing it just as well.
Below is one way of classifying the market conditions. This was written by Chuck Le'Beau (an author of books on system development). This is just to give you an idea. You can develop a similar framework on your own quite easily.
Condition 1 = Market is moving upward gradually in a narrow channel.
Condition 2 = Market is moving upward gradually in a wide channel.
Condition 3 = Market is moving upward sharply in a narrow channel.
Condition 4 = Market is moving upward sharply in a wide channel.
Condition 5 = Market is moving sideways in a narrow channel.
Condition 6 = Market is moving sideways in a wide channel.
Condition 7 = Market is moving downward gradually in a narrow channel.
Condition 8 = Market is moving downward gradually in a wide channel.
Condition 9 = Market is moving downward sharply in a narrow channel.
Condition 10 = Market is moving downward sharply in a wide channel.
Condition 11 = Unknown or none of the above.
As for your question about what is a better method for intraday trading, I would say that austinp's comments are right on target. Even in intraday trading you have to try to protect your large winners. Moreover, try to trade as infrequently as possible ie. go for only the strongest setups. Even if you are trading one lots, try to enter and exit at points where a 100 lot trader would be looking to do so. In my case, when I started out, I was making over 40 trades per DAY. Now, I take 8 to 10 trades per week ie. less than two trades per day (though I do it with much larger size). Over the next 5 years, I hope to bring my trading frequency down to about 150 trades per year ie about 3 trades per week.
Good luck to you.
"Scaling out" is not inferior behavior. Being rigid and not adjusting to different circumstances is inferior behavior.
Scaling out is not a behavior in the first place; it's part of an overall strategy. Scaling out is a strategy that can be used whether you're a day trader, swing trader, or a position trader.
Quote from I Trade 4 Money:
"Scaling out" is not inferior behavior. Being rigid and not adjusting to different circumstances is inferior behavior.
Scaling out is not a behavior in the first place; it's part of an overall strategy. Scaling out is a strategy that can be used whether you're a day trader, swing trader, or a position trader.
Quote from Buy1Sell2:
No my trades are not all hedged with options until I feel we are nearing a top. As a market climbs I begin scaling in call option sales well out of the money. When the market is near the top, I will be fully hedged. I have not had a losing option trade since the 1992 Soybean market. As far as the scaling in goes, the move seldom(and I mean very seldom) takes off without me. If it does, I go full bore at that time. Very few times that this happens.
Quote from volente_00:
Not that it matters now but i remember back when we were around 1260 before we ran to 1325 and I was bullish and catching hell from every short on ET including you but i do remember you scaling in shorts from 1260-1290 and calling for 1150 as you built the position. I think you ended up stopping out in the 90's but I still don't get the 2% stop idea. Is this 2% of your total capital ? 2% of your amount that you have allocated just for index futures ? The reason I am confused is because if one is building a position for a bigger move, each time you add you are increasing your market risk if it is based on a % amount that fluctuates with your account balance where as a fixed point amount for a trade will never change regardless. I suspect that these es trades are a small fraction of your total portfolio on these long term trades in comparison to us day traders who strictly trade ES only with maximum leverage and minimal capital due to brokerage risk.
Quote from Buy1Sell2:
The 2 percent is 2 percent of total liquid net worth. When I build, I start small and add to it until I get the size on that I desire. I was then positioned for the selloff that I believed was coming(and did). I was never stopped out. That position was never hedged with options as I generally don't like selling ES puts. The risk using a fixed point does increase by adding positions, but as long as that point keeps you within 2% of total liquid net worth, then it's fine.
Quote from volente_00:
Yes but your liquid net worth changes every day so the stop is not constant. How does that variance fit into the management of the trade ? With a 1, 2 or 20 point stop and a max fixed amount of contracts your monetary loss is constant. So you added to those shorts all the way up from 1260 to 1325 and were unhedged before we fell ? What % percent is this ES postion in relation to your total portfolio What is your current position in ES and what is your outlook ?
Quote from Buy1Sell2:
If I were to exit, I would take the full position, not scaling out. Sorry guys, you have missed the boat. I've got my new airplane I need to go test, I'll be back later and may respond if I see something worthy. Thanks guys!
Quote from optionpro007:
Nobody else seems to care and I know it's off topic, but I am curious.
What's the deal with the "new" airplane ?
Quote from Buy1Sell2:
It was a joke. I had some things that needed to be attended to that day and thought I would lighten things up a bit. I do have a certain amount of flight time with a sharing plan, but no personal plane.
Quote from volente_00:
X So you added to those shorts all the way up from 1260 to 1325 and were unhedged before we fell ? What % percent is this ES postion in relation to your total portfolio What is your current position in ES and what is your outlook ?
So you are still currently long right now ? If so when will you think about selling calls ?
Talking about inferior behavior and this is a different subject altogether, but can be linked.
When a buy signal is generated, would it be inferior behavior to close position before a sell signal is generated? Because if we do wait for a sell signal on most trades, then in theory all positions should be reversed at the time a new signal is generated. From what I have seen on ET, most traders would open and close positions, but would seldom reverse a position.
People like B1S2 and ******** would normally try to exhaust their position and when the move is over in their view they reverse initial position. Although I do not belong to that camp, I do consider this a superior way to trade. Of course sometimes there is no reverse signal and as B1S2 has said earlier on a trader will be forced to give back profits or even lose a bit on initial stop level. Intraday I still find it difficult to stay in a position "till the end" until a reverse signal is generated mainly due to lack of experience, hence the need to use scaling out. I am looking at a trailing stop, though a trailing stop can also be classed as inferior behavior as profits are protected, though potential full move is not being exploited.
Basically, should a trader strive to stay in a position until a reverse signal is generated or should he simply lock in profits? Hopefully I managed to bring the point across.
Opinions?
__________________
Romik
One opinion.
A buy for me requires a signal with a particular certainty (say confidence = 75%) and a risk reward for the logical stop and likely termination area (even if you trail a stop you should have an idea how far a setup is likely to travel).
A sell for me requires a signal with a different certainty (say confidence = 60% that this move is "exhausted"). But it doesn't have to conform to stop and target disciplines.
That puts me in the "don't reverse" camp.
__________________
------------------------
The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
Quote from romik:
Basically, should a trader strive to stay in a position until a reverse signal is generated or should he simply lock in profits? Hopefully I managed to bring the point across.
Opinions?
Quote from romik:
Basically, should a trader strive to stay in a position until a reverse signal is generated or should he simply lock in profits? Hopefully I managed to bring the point across.
Opinions?
Quote from illiquid:
Sigh . . . must . . . stop . . . posting . . . on . . . this . . . thread . . .
__________________
"What the.....?"
My scaling out is usually 50% at initial target, and the rest with a trailing stop that I move up below resistance. Seems to work for me.
Steady and consistent is my goal.
__________________
redliontrader.com
Quote from Cutten:
I think all traders would agree that one's position size shoud reflect two things - the amount of risk one is prepared to tolerate, and the opportunity presented by the market in question. Let's assume we have decided our level of risk tolerance - the only thing then left to do is to evaluate the current risk/reward available in the trade.
If the trade is presenting a great risk reward, you should have a larger position. If the trade is good but not great, you would have an average size position. If the trade is acceptable but has some flaws (e.g. higher than normal uncertainty), then you would have a small position.
So, if we accept that position size should vary according to opportunity, "scaling out" not only makes sense, but is a requirement, in certain situations. If you have a position that started out great, but has now degraded somewhat, then you should reduce your position size. You may have started out long 20 lots, but now the risk has increased, the volatility is expanding, so the appropriate position size may only be 10 lots or even 5 lots. The expectation is still positive, but the risk is higher and/or the probability of success is lower and/or the reward has decreased.
Anyone who says position sizes should remain fixed is basically saying that all market opportunities have identical risk/reward profiles, and furthermore, that the risk/reward of a position does not change over its lifetime. I certainly don't agree with that. Look at any market and volatility fluctuates over time. If volatility increases, then other things being equal, you should reduce your position.
Thus - scaling out makes perfect sense in some cases.
I don't see what the fuss is all about. The people on here that do make a profit from their trading do it using a lot of different methods including scaling in and out it doesn't matter. Keep doing what you are doing. It is you who pulls the trigger on each trade. It is you who either wins or loses a trade. You know what makes you money so don't change a thing. Personally I don't scale in or out but since I don't fund your account or manage your trades it should not matter to me how you do things.
Quote from acronym:
You could always scale out of the thread
Quote from illiquid:
For someone who advocates reversing positions upon fulfilled objectives, scaling into a position is the same as scaling out of a position -- it's just a matter of bookkeeping. Does it really matter whether you were long or short before the reversal signal was received, to determine whether or not you should sell/buy a whole position or just a partial? It doesn't add up.
Sigh . . . must . . . stop . . . posting . . . on . . . this . . . thread . . .
__________________
Romik
Quote from romik:
Clearly you are confused, did you understand my question?
Do you actually make any money trading, you seem to lose more than you make according to the PnL thread. So tell me why should I/we listen to what you have to say?
Quote from illiquid:
Getting back to what I wrote earlier -- by your previous post you assume that b1s2 often attempts to reverse his profitable positions: if you assume this then you must resolve the contradiction of how he advocates scaling one's entry but not the exit, when in a reversal situation they are one and the same. Whether you have a converse position you need to liquidate first before you take that next signal should have no bearing on whether or not you should sell whole or partial, the trade should be the same.
Quote from volente_00:
So you are still currently long right now ? If so when will you think about selling calls ?
i've missed alot of pages on this thread, but it sounds like you are in favor of scaling into a position and against scaling out.
Do i understand correctly?
Quote from ashcroftsinger:
iIf the answer is yes (which i believe it is), then scaling out is obviously needed.
Quote from AaronCapps:
i've missed alot of pages on this thread, but it sounds like you are in favor of scaling into a position and against scaling out.
Do i understand correctly?
so the saying," only losers average losers", you laugh in it's face.
Is your style of trading similar to the Turtles, of scaling in at the beginning of a large move as much as possible and holding on for as long as possible?
Quote from Buy1Sell2:
Reversals begin happening and prices still drift higher. Scaling in is a fantastic strategy to get the short position on at better prices. I don't necessarily reverse when I get out at full position. I may be on the sidelines looking for a good signal to get in while I am in another market or two.
Quote from AaronCapps:
so the saying," only losers average losers", you laugh in it's face.
Is your style of trading similar to the Turtles, of scaling in at the beginning of a large move as much as possible and holding on for as long as possible?
and by 2% of total liquid net, you refer to unused margin in your account? So depending on how many other trades you have going on can affect how heavy you might get in your current trade?
Quote from illiquid:
Right, so let's assume that scaling is a "fantastic strategy" for easing into a position at successively better prices. Now, do you think it really matters that you were long 10 contracts when you started initiating your short bias with partial sales, or if you were flat? Your assumption that reversals begin while prices still drift higher justifies scaling both entries and exits -- the market will act the same and present the same risks whether or not you were previously long. There is no justification for scaling one side and not the other.
Thank you, illiquid. I just read this whole thread waiting for someone to make that point. You CANNOT rationally support scaling in and not support scaling out.
Now, as it happens, in my experience, I think most folks tend to scale out too aggressively. (Certainly, that has been my tendency.) However, from a theoretical standpoint, the thread starter's position is untenable.
Quote from Buy1Sell2:
No sir. You are assuming that there is no time span between the exit and the initiation within the same market. Even if there wasn't I would take the full position off and evaluate then start very very small on he initiation.
Quote from illiquid:
There is no justification for scaling one side and not the other.
I hope there is no confusion between Scaling In and Averaging Down. B1 I know that you average down, I remember you mentioning that you do not scale IN. Does my memory serve me correctly?
__________________
Romik
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior bevior.
Individual examples are meaningless. A statistically significant number of examples are needed to determine expectancy. Inherently, then, your example misses the fact that on many occasions the market reaches the lower target not the higher target.
Quote from romik:
I hope there is no confusion between Scaling In and Averaging Down. B1 I know that you average down, I remember you mentioning that you do not scale IN. Does my memory serve me correctly?
Quote from jasonbraswell:
Individual examples are meaningless. A statistically significant number of examples are needed to determine expectancy. Inherently, then, your example misses the fact that on many occasions the market reaches the lower target not the higher target.
Quote from Buy1Sell2:
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior bevior.
Quote from AaronCapps:
and by 2% of total liquid net, you refer to unused margin in your account? So depending on how many other trades you have going on can affect how heavy you might get in your current trade?
Quote from AaronCapps:
and by 2% of total liquid net, you refer to unused margin in your account? So depending on how many other trades you have going on can affect how heavy you might get in your current trade?
Whatever, man. Think this if you wish, but your ignorance of the obvious flaw in your reasoning tells me your a poser.
Later, folks.
Quote from volente_00:
This is the part that is unclear to me still because the dollar amount that the 2% equals is constantly changing, so if you have a losing trade going on in soybeans, it affects your stop out point in ES even though the 2 are not related.
Quote from Buy1Sell2:
This refers to liquid assets in my trading account and other places.--Total liquid net worth.
Quote from jasonbraswell:
Whatever, man. Think this if you wish, but your ignorance of the obvious flaw in your reasoning tells me your a poser.
Later, folks.
Quote from Buy1Sell2:
No --I would allow 4 percent between the two trades. It's 2 percent per trade/idea.
Quote from volente_00:
So if you buy a cup of coffee, you have to take that off of your total liquid net worth and your stops get adjusted ?
Quote from Buy1Sell2:
I generally would call what I do averaging down, but some call it scaling in. I don't believe that I have said that I don't scale in unless it was in some other context. Anyway, you are correct that what I do I call averaging down. I think when someone averages into losers, you must define what a loser is. A loser to me is a trade that goes beyond the 2 percent loss of total liquid net worth and the cat keeps averaging. There is a huge difference between that and what I do.
__________________
Romik
Quote from volente_00:
I disagree, if you scale in you are increasing your risk and are averaging into a losing trade because the fact is the only reason you would only buy partial is because you fear that you are not making a entry that will soon be profitable so you don't press full size. If you scale out your are decreasing your market risk, and since you scale out of winniong trades there is no chance that it is drawing down your initial capital, only your paper profits if you continue to hold some of the position and it reverses.
Quote from volente_00:
I still am unclear, for simplicity lets say your net worth is 100k. So you are willing to lose 2k max on the es trade right ? But say your other trade is soybeans and you lose 2k and stop out. now your LNW is 98k so does your stop point on ES adjust to $1960 or still stay 2k ?
Quote from romik:
Am I mistaken in thinking that Scaling IN and averaging down are 2 different methods? Isn't scale in is adding size to a profitable position where averaging down is vice versa?
Quote from Buy1Sell2:
I typically use the starting net worth amount and stay with it unless there is a larger group of losses across the markets I am in and then I reevaluate. I am generally in 5 or 6 markets at once, so I could potentially have a 10 or 12 percent drawdown. I would tell you that by diversifying though, I don't end with 6 losers at once and the account is growing through diversification and call selling continuously.
Let's rename the thread to
"Arguing on ET" is inferior behavior
Quote from volente_00:
Let's rename the thread to
"Arguing on ET" is inferior behavior
Quote from Buy1Sell2:
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior bevior.
Quote from thenewguy:
Scaling out that way is definately "inferior". However, this seems to be more of an argument for accurate price targets. If you scale out first at your price target and then let it run you get different results, especially if your price target is not very accurate in relation to the high.
To me, the only question is how do you know the second trades were scaled out at 4.5? You assume by "scaling out" you are selling the first bunch BEFORE the price target, not after.
My question to you is, how do YOU pick your price targets. You seem fairly certain that they are as good as can be....
Thanks,
TNG
Quote from Buy1Sell2:
Put any price target in there or any stop loss, including a scenario where you let the rest run. This is the main point of my discussion and assertion here. The math doesn't lie. This argument is not dependent on what your system is. That's why a "banket" statement can be made.
Quote from illiquid:
The big mistake buy1sell2 makes is that he assumes scaling out will always prematurely exit a position, versus a full exit. This is true only in hindsight, comparing the scaled exit to an "optimal" exit. But in real-time, in real trades, scaling will sometimes keep you in the trade longer than you normally would, which is something Thunderdog alluded to. Scaling out is always inferior to the "optimal" figure, but the optimal is just a "theoretical" number -- this doesn't hold in real-time.
Say, based on backtested figures, you've found that an "optimal" target will net you 3 points on average for method X, based on a past series of trades; over the same time frame, scaling out only nets you 2. However, let's say for the next Y number of trades, the ranges widen quite a bit for method X -- scaling out leaves you in the trade longer, and therefore for those trades you've netted an average of 6, while your "optimal" exit yields just 3.5 for the new series.
Now, if you backtest with the new information you receive with the second series of trades, you will find that a new "optimal" target will net you 4.5 points, while scaling overall yields 4. The difference here is this: the 4 points on avg for scaling is an actual figure that you would have received for all trades; the 4.5 points for the "optimal" target is just a theoretical figure which has been adjusted for the new series -- you still only get 3.5 for using the "optimal" target from the first series. Optimal is only optimal in hindsight, and comes down to how quickly you can adapt that figure for incoming trades. It's quite possible that scaling out will yield a greater profit overall -- at least a profit more "reflective" of current conditions -- while an optimal figure can move quite slowly, depending on how many trades are used as history/how fast conditions have shifted.
edit: the converse example for a deteriorating method "X" would probably be more realistic and to the point -- that is, a method whose optimal target is progressively smaller. If method "X" began as a very high yield setup, say given for a high volatility market, but deteriorates as volatility contracts, you would see a far greater "real-time" difference in results between a scaled exit versus an "optimal" exit -- meaning, the prior higher "optimal" exit might yield 0 or worse, as opposed to an "updated" optimal figure.
Quote from Buy1Sell2:
Put any price target in there or any stop loss, including a scenario where you let the rest run. This is the main point of my discussion and assertion here. The math doesn't lie. This argument is not dependent on what your system is. That's why a "banket" statement can be made.
Quote from thenewguy:
That doesn't make any sense to me. I'll set a price target of 2 pennies, and let the rest run. You're telling me that selling it all at 2 pennies will ALWAYS be more profitable then leaving half on and letting it run higher or lower?
TNG
Quote from illiquid:
What b1s2 will say to you is that, given that you made more money scaling out than exiting all at 2 pennies, that your 2 penny target was wrong, and should have been higher. Now, how you realize this beforehand and apply this way of thinking in real-time is beyond me.
Quote from illiquid:
What b1s2 will say to you is that, given that you made more money scaling out than exiting all at 2 pennies, that your 2 penny target was wrong, and should have been higher. Now, how you realize this beforehand and apply this way of thinking in real-time is beyond me.
Quote from thenewguy:
That doesn't make any sense to me. I'll set a price target of 2 pennies, and let the rest run. You're telling me that selling it all at 2 pennies will ALWAYS be more profitable then leaving half on and letting it run higher or lower?
TNG
Quote from Buy1Sell2:
Just type that example up for me so I can see. Make certain that the final price target on both sides of the example is "letting it run".
Quote from thenewguy:
I'm not 100% sure what you are asking for, but here is an example (although not a real trade I've done, but definately an example of what I have done in the past).
TNG
Edit: screwed up the image, will post it again.
Quote from thenewguy:
I'm not 100% sure what you are asking for, but here is an example (although not a real trade I've done, but definately an example of what I have done in the past).
TNG
ES System with 5% winners and 20 trades. 9 point target 3 pt loss. 4 conracts
1st without scaling out
1 winner 9 X (4 contracts) = 36 pts($1800)
19 losers 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$9600
2nd with scaling out at half
1 winner 9 X (2 contracts)= 18 pts ($900)
1 winner 4.5 X (2 contracts)= 9 pts ($450)
19 loser 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$10050
Don't confuse my assertion with picking the optimal targets necessarily. That is part of my system, but the point is that no matter what target you use, stop loss, percentage of winners, the result is always the same--unless you have a zero percent system which I am sure exists.
Scaling out is inferior bevavior.
unprofitable traders don't scale out of a position, that is unless they play small where they can't scale out
__________________
If i had a dollar for everytime someone tried to screw me over...that'd be some major coinage
Quote from Buy1Sell2:
ES System with 5% winners and 20 trades. 9 point target 3 pt loss. 4 conracts
1st without scaling out
1 winner 9 X (4 contracts) = 36 pts($1800)
19 losers 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$9600
2nd with scaling out at half
1 winner 9 X (2 contracts)= 18 pts ($900)
1 winner 4.5 X (2 contracts)= 9 pts ($450)
19 loser 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$10050
Don't confuse my assertion with picking the optimal targets necessarily. That is part of my system, but the point is that no matter what target you use, stop loss, percentage of winners, the result is always the same--unless you have a zero percent system which I am sure exists.
Scaling out is inferior bevavior.
Quote from Buy1Sell2:
You are making my case for me here by taking some off and letting the rest run. Letting the whole trade run is better than letting part of the trade run over the long haul. In a side by side example, you have to let the ultimate target be "letting the trade run" on both sides of the comparison. This is a thread not about proper price targets, but rather about once someone has set their system up, which way gives you more money. You are entering a different discussion when you said all at 2 pennies versus letting the trade run. That's not for this thread.
Quote from Buy1Sell2:
ES System with 5% winners and 20 trades. 9 point target 3 pt loss. 4 conracts
1st without scaling out
1 winner 9 X (4 contracts) = 36 pts($1800)
19 losers 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$9600
2nd with scaling out at half
1 winner 9 X (2 contracts)= 18 pts ($900)
1 winner 4.5 X (2 contracts)= 9 pts ($450)
19 loser 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$10050
Don't confuse my assertion with picking the optimal targets necessarily. That is part of my system, but the point is that no matter what target you use, stop loss, percentage of winners, the result is always the same--unless you have a zero percent system which I am sure exists.
Scaling out is inferior bevavior.
Quote from thenewguy:
ES System with 5% winners and 20 trades. 9 point target 3 pt loss. 4 conracts
1st without scaling out
1 winner 9 X (4 contracts) = 36 pts($1800)
19 losers 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$9600
2nd with scaling out at half
1 winner 9 X (2 contracts)= 18 pts ($900)
1 winner 18 X (2 contracts)= 27 pts ($1800)
19 loser 3 X (4 contracts) = 228 pts ($-11,400)
Total Net Loss = -$8700
How can you argue this wouldn't have happened?
TNG
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
Re: Re: "Scaling out" is inferior behavior
Quote from cashmoney69:
And when you pay 7.00 both ways in coms, it can really save some money, even though its maybe not the safest thing to do.
Quote from Buy1Sell2:
You'll need to use 18 in the first part of your example as well here. Also, 18 X 2 = 36
Quote from thenewguy:
Why? the profit target was 9 points.
TNG
Lets ramp this logic up a notch.
You are trading the ES in the heavy morning traffic ... lot size = 200+
Comms < 1/4 point rt.
Scale in/ out or not.
Remember it is dangerous in there at 200+
Quote from Buy1Sell2:
No the ultimate profit target was 18 as you indicated in the second part of the example.
Buy1, I ment to ask you. When you say you "let your winners run", does that mean you hold through a fed meeting, or earnings, or any other market condition that could really f--k you over?... a perfect example is TZOO on daily charts.
Like I said before, I dont scale out, but one should exit BEFORE the inevitable happens.
cm69
Quote from thenewguy:
No, the profit target was 9 points and I put a trailing stop on the rest. You are basically arguing that if you scale out before the ultimate high of the trade, it's inferior. I agree with that!
TNG
Quote from cashmoney69:
Buy1, I ment to ask you. When you say you "let your winners run", does that mean you hold through a fed meeting, or earnings, or any other market condition that could really f--k you over?... a perfect example is TZOO on daily charts.
Like I said before, I dont scale out, but one should exit BEFORE the inevitable happens.
cm69
Quote from Buy1Sell2:
What you did was scale out at 9 points which was half the position. You are in agreement with me. The math says it all. My point is that if your profit target is 9--let it run to 9 . If your profit target is 18 , let it run to 18. If you are using a trailing stop, you are better off letting the whole trade run to get stopped out by the trailing stop rathe than scaing out. That's the whole point.
Quote from thenewguy:
Right, i am in agreement there. Then what I did is let half the trade run farther than it would have if i sold it all at 9. exiting all at once would have made you less money than scaling out. simple as that. you keep arguing that if you scale out, your profit target is too low if the trade went higher. I'm not really sure how else to put this, but you are totally missing my point.
TNG
Quote from Buy1Sell2:
Each trader defines his profit taking point. Regardless of whether or not that profit taking point is wrong has nothing to do with it. You come out better by not scaling out. The idea of letting the trade run with trailing stops, which is what I do in general, is an entirely different subject.
Quote from fearless9:
Lets ramp this logic up a notch.
You are trading the ES in the heavy morning traffic ... lot size = 200+
Comms < 1/4 point rt.
Scale in/ out or not.
Remember it is dangerous in there at 200+
.__________________
If at first you don't succeed ...
Quote from JimmyJam:
Bawahahahah
I'd say hold for at least a week or so ...
So long as you have the $800K required for overnight margin.
Quote from Buy1Sell2:
Each trader defines his profit taking point. Regardless of whether or not that profit taking point is wrong has nothing to do with it. You come out better by not scaling out. The idea of letting the trade run with trailing stops, which is what I do in general, is an entirely different subject.
__________________
If at first you don't succeed ...
Quote from JimmyJam:
A sincere thanks for the thread B1S2, you've helped me resolve my own questions about scaling-in/out with the input of a lot of good traders.
The strength and conviction of the viewpoints argued shows that this is a key part of any successful trading methodology, one which is just as important as when to enter a position.
For what it's worth (to me at least) I'm with you 100%, taking profits too early turns a great system into being merely good, and makes a good system just barely so.
Regards and Good Trading,
Jimmy Jam
Quote from ssternlight:
It's funny.
I came to the conclusion that no one here bothered to properly test their theories out. Just a lot of single examples without any sort of solid statistical support to back up the idea.
Frequently, that's ET...
Quote from ssternlight:
It's funny.
I came to the conclusion that no one here bothered to properly test their theories out. Just a lot of single examples without any sort of solid statistical support to back up the idea.
Frequently, that's ET...
__________________
If at first you don't succeed ...
"I came to the conclusion that no one here bothered to properly test their theories out. Just a lot of single examples without any sort of solid statistical support to back up the idea."
Statistics... you can prove either side of a discussion with statistics.
I would say it has been well defended that scaling out works for some in real time, with real money tugging at real emotions. I would also opine that letting profits ride longer than one can stand and/or use of trailed stops instead of outright exits for partial positions will invariably make more money (using most methods known to man) when trading eminis.
Eminis and stocks trade differently on a short-term basis. Anyone who has seriously done both knows exactly how that is. Managing trades for each market also differs, IMO.
Very interesting thread... I learned quite a bit from members here on both sides of the discussion who seldom chime in with posts. Thank you for the valued input, and we hope to hear from y'all plenty more!
Quote from JimmyJam:
Actually I tested out different models for scaling out of positions for years before coming to the conclusion that it was better (for me) to scale into positions and hold them for the duration of the move.
As I said before, B1S2's, austinp's input is good confirmation, without which I would still have my data, but sharing information with other traders can be a good thing.
Talk what you know.
JJ
Quote from austinp:
"I came to the conclusion that no one here bothered to properly test their theories out. Just a lot of single examples without any sort of solid statistical support to back up the idea."
Statistics... you can prove either side of a discussion with statistics.
I would say it has been well defended that scaling out works for some in real time, with real money tugging at real emotions. I would also opine that letting profits ride longer than one can stand and/or use of trailed stops instead of outright exits for partial positions will invariably make more money (using most methods known to man) when trading eminis.
Eminis and stocks trade differently on a short-term basis. Anyone who has seriously done both knows exactly how that is. Managing trades for each market also differs, IMO.
Very interesting thread... I learned quite a bit from members here on both sides of the discussion who seldom chime in with posts. Thank you for the valued input, and we hope to hear from y'all plenty more!
Quote from thenewguy:
I was talking about the same trader, with the same profit point using two different methods. Whether or not your profit point is wrong has everything to do with it, because when I point out that in that trade scaling out would have made more money you tell me my profit point was wrong! You are right about one thing though, the math sure doesn't lie. You would have made more money scaling out, hands down.
TNG
Quote from ssternlight:
I'm glad you found an approach that was optimal for you. My point was the discussion here has not shown any one exit strategy or another to be superior. The most I can conclude from the discussion is that no one has presented a convincing argument for one side or the other -- which is pretty typical of ET discussions.
Having said that, the examples posted by BS12 are flawed. That's not to say that the strategy is flawed just the examples don't prove the case.
As for "talking what I know", I've traded systematically for over a decade now and have tested all kinds of ideas with many different types of money management. My own opinion is more along the lines of different horses for different courses. Generally speaking, I find the market tends to school those who come from an absolutist point of view on just about any approach.
Just my $.02
Quote from illiquid:
It's like me saying "Selling the top is the best way to exit a long trade", then pulling out example after example where I'd point to the top and say "Yep, I'd sell out here". It's an illusory application of a rear-view mirror "proof".
Quote from fearless9:
illiquid ....You are just determined to take the fun out of this thread.
Quote from fearless9:
illiquid ....You are just determined to take the fun out of this thread.
This thread is becoming a joke. We have b1s2 just refusing to accept any logic or math to show the point of scaling and rest trying to explain the issue beyond what it needs to be. This is all while he has admitted that he cannot daytrade, yet scaling out is inferior on all time frames.
The funny thing is that I actually tried B1S2's strategy today and ended up going from up 200net to down 250net. All from a string of losses that could have been small gains or much smaller losses due to scaling. After 10am, I just could not find the full moves correctly. Not to say I did not have profits I could have taken but I wanted to experience firsthand how the all or nothing would work out. Ironically, all my profitable trades from the first 30 min were scaled.
I'm not a trader on the floor where slippage is near nonexistant and commissions are the lowest possible. I can't just stamp my ticket with a big "F" and make the price I want. Slippage and the spread are not my friends but my biggest enemies.
That all or nothing does not work anymore unless you are a position trader that can handle the risk. This market chops ppl up, even in the strongest up/down trends.
__________________
Whenever a trader thinks his trade is 100% right, he is 110% wrong
Quote from Buy1Sell2:
What you did was scale out at 9 points which was half the position. You are in agreement with me. The math says it all. My point is that if your profit target is 9--let it run to 9 . If your profit target is 18 , let it run to 18. If you are using a trailing stop, you are better off letting the whole trade run to get stopped out by the trailing stop rather than scaling out. That's the whole point.
Quote from Buy1Sell2:
Sorry--no it's not BS. I've given you the honest answers here in this thread. You may take the suggestions or not --it's up to you. However, I am not selling anything and I am not a fake.
Quote from romik:
Cutten, you need to calm down
For some reason, I am reminded of marketsurfer's thread dismissing trend following out of hand.
http://www.elitetrader.com/vb/showt...ed&pagenumber=1
Regardless of what you said, marketsurfer patiently assured you, time and again, that trends were illusory. If you recall, he was between handles at the time, having been banned for the second or third time for some reason or another, and was going under the name of hank rollins when he initiated that thread.
That boneheaded thread went on for 265 pages. You have been warned. Govern yourselves accordingly.
__________________
I'm handing you no blarney
Quote from illiquid:
Since b1s2 advocates trading the longer term, risking 2% on any given trade idea -- it's really no wonder that he doesn't condone scaling, there's basically no room for it. When trading such long time frames, you will need to have stops that are quite wide, and to limit your losses to 2% it means your position size relative to your account size will be much smaller than a shorter-term trader. To let go of a good trade even partially prematurely is very costly in this scenario.
Quote from Buy1Sell2:
Why
Quote from volente_00:
a Risk free trading is the best kind of trading. My argument is you have a higher % chance of catching just 2 points in an ES trade with 5 times as much size versus trying to capture 10 points over a longer time frame with 1/5 of the size. The monetary risk is exactly the same for both trades.
Quote from Cutten:
Ok, but if you are genuine, you're hurting your credibility a lot by making excuses to avoid an examination of your reasoning. It would be much better if you counter critiques by explaining *why* your approach is better, rather than by making obfuscations or saying "sorry, gotta go my plane is waiting". Surely you can see that?
Quote from ashcroftsinger:
The questions that I ask myself for addressing this issue are
What is my system for position sizing? Is it solely based on my risk tolerance? Is my system essentially around estimating optimal prices (and times?) - for both entry and exit?
If the edge that I have is primarily (or solely) based on predicting price levels, or identifying rules about changing price levels that enables me to enter and exit, then the system could have position sizing rules that can be independent of market conditions and dependent only on risk profiles. In such cases, entry and exit can be in binary levels.
However, if my system takes the market conditions and trade attractiveness into account when determining size of the position (eg - size based on relative win ratio of the trade, anticipated time in the trade, market volatility, changing market exposure at a portfolio level), as the trade develops and market characteristics change, the factor determining the size of position changes, and hence scaling out may be a superior.
Quote from Buy1Sell2:
...When you scale out, you will make less/lose more when scaling out.
__________________
Romik
Quote from Hydroblunt:
The funny thing is that I actually tried B1S2's strategy today and ended up going from up 200net to down 250net. All from a string of losses that could have been small gains or much smaller losses due to scaling. After 10am, I just could not find the full moves correctly. Not to say I did not have profits I could have taken but I wanted to experience firsthand how the all or nothing would work out. Ironically, all my profitable trades from the first 30 min were scaled.
Quote from romik:
That depends on win/loss ratio, does it not?
Quote from volente_00:
and what if your profit target is only 2 points with large size ? so you sell half at 2, move your stop to break even and then the move continues 8 more points in your favor or worst case you get stopped out break even all while enjoying the benefit of having a trade on that can no longer take away from your initial capital. Risk free trading is the best kind of trading. My argument is you have a higher % chance of catching just 2 points in an ES trade with 5 times as much size versus trying to capture 10 points over a longer time frame with 1/5 of the size. The monetary risk is exactly the same for both trades.
Quote from fearless9:
Volente
Good lord man, you must be a Trader and not just an armchair jock.
Otherwise it is a remarkable coincidence because you certainly sound like a Trader.
Where were you a little while back in this thread when I needed you with my 200 lot example?
Quote from Buy1Sell2:
The only time that scaling out will be equal to not scaling out is on a system of zero percentage winners. In that case, both behaviors will lose the same amount. This is inarguable.
__________________
Romik
Quote from volente_00:
What was your example ?
Quote from volente_00:
B1S2, do you see the other side of the fence ?
You can even change the point targets higher or lower but it is the same principle.
Quote from Buy1Sell2:
If you change the profit targets higher then the profit targets on both sides of the comparison need to be changed higher. The system that allows the full position to run to the target will beat the system that scales out every time. If the system being used is flawed in terms of winning expectancy or doesn't have the proper Reward/Risk Ratio then you may lose money, but you will lose less by not scaling out. It's simple.
Quote from volente_00:
1 to 1 rr
The flaw is you are assuming that you can exit at the exact top or bottom on every trade in order to beat the scale out method results.
Do you disagree with my position size argument ?
It does not matter if i trade for 2 point targets while your trade for 10 as long as my size is 5 times as much. With a 1 to 1 that results in the same exact monetary risk as you but odds are I will get multiple trades in while your are still waiting to ring that 10 pointer.
Quote from Buy1Sell2:
If my system calls for 10 points and yours calls for 2 points, we would both have done research on determining what our winning percentage expectancy should be. If I am trading the 10 point system, then I let the full trade run to 10 poins instead of scaling out. If you are running the 2 point system, the you let the full trade run to two points. That is all I am saying. I am not arguing whether a 2 point system with larger leverage can beat a 10 system with less leverage. That's an entirely different discussion. What I am saying is that within a system, let's say the 2 pointer, you should let the full trade run to the full 2 points instead of scaling out. Period.
Quote from volente_00:
You are once again assuming that you know exactly where top or bottom will be, if you were confident in that you would not average into entries.
Quote from volente_00:
You are once again assuming that you know exactly where top or bottom will be, if you were confident in that you would not average into entries.
Quote from Cutten:
Ok, but if you are genuine, you're hurting your credibility a lot by making excuses to avoid an examination of your reasoning. It would be much better if you counter critiques by explaining *why* your approach is better,
Quote from Buy1Sell2:
The math doesn't lie. When you scale out, you will make less/lose more when scaling out.
Quote from illiquid:
We've been over this already -- in retrospect, the scale out will always prove inferior to the "mathematically" determined optimal exit. It doesn't hold in real time however, where scaling out can prove more profitable in changing conditions in regards to method X. You are letting after-the-fact math fool you.
The big mistake buy1sell2 makes is that he assumes scaling out will always prematurely exit a position, versus a full exit. This is true only in hindsight, comparing the scaled exit to an "optimal" exit. But in real-time, in real trades, scaling will sometimes keep you in the trade longer than you normally would, which is something Thunderdog alluded to. Scaling out is always inferior to the "optimal" figure, but the optimal is just a "theoretical" number -- this doesn't hold in real-time.
Say, based on backtested figures, you've found that an "optimal" target will net you 3 points on average for method X, based on a past series of trades; over the same time frame, scaling out only nets you 2. However, let's say for the next Y number of trades, the ranges widen quite a bit for method X -- scaling out leaves you in the trade longer, and therefore for those trades you've netted an average of 6, while your "optimal" exit yields just 3.5 for the new series.
Now, if you backtest with the new information you receive with the second series of trades, you will find that a new "optimal" target will net you 4.5 points, while scaling overall yields 4. The difference here is this: the 4 points on avg for scaling is an actual figure that you would have received for all trades; the 4.5 points for the "optimal" target is just a theoretical figure which has been adjusted for the new series -- you still only get 3.5 for using the "optimal" target from the first series. Optimal is only optimal in hindsight, and comes down to how quickly you can adapt that figure for incoming trades. It's quite possible that scaling out will yield a greater profit overall -- at least a profit more "reflective" of current conditions -- while an optimal figure can move quite slowly, depending on how many trades are used as history/how fast conditions have shifted.
edit: the converse example for a deteriorating method "X" would probably be more realistic and to the point -- that is, a method whose optimal target is progressively smaller. If method "X" began as a very high yield setup, say given for a high volatility market, but deteriorates as volatility contracts, you would see a far greater "real-time" difference in results between a scaled exit versus an "optimal" exit -- meaning, the prior higher "optimal" exit might yield 0 or worse, as opposed to an "updated" optimal figure.
Quote from Buy1Sell2:
Done and Done
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
Quote from illiquid:
As long as you keep posting the above, I will continue to post the below, so address this issue directly for once please.
Quote from thenewguy:
Why are your scale out prices always less than the profit target price?
TNG
Quote from Buy1Sell2:
Done and Done
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
Quote from Buy1Sell2:
I have addressed this numerous times. You do your homework and come up with a system that has decent expectancy and then you let the trade run to that target . Whether or not I as a trader can pick optimal targets is not the question. Whether or not a trader can pick the exact top is not the question. The question is whether or not after defining your profit target that you have set for yourself, it makes sense to get out of some of the position prior to maturity. The answer is no.
Quote from Buy1Sell2:
That is the part of the definition of scaling out unless you are short.
Quote from volente_00:
you are assuming to many variables. First off the guy having 50% win using scale outs is going to have a higher winning ratios than the one who does not scale out. When the one who does scale out gets stopped out after scaling out, he will only be losing half where as the other guy will lose double on every stop out. The 2 traders can not have the same exact stop out loss total if one is scaling out.
Just explain how the two have the same exact stop out loss $ if the one who scales out only has half the position left to lose on.
Quote from thenewguy:
Exactly, we are talking about what happens AFTER maturity.
TNG
B1S2, run the same example for 2 point target and 2 point stop between the 2.
Quote from volente_00:
Just explain how the two have the same exact stop out loss $ if the one who scales out only has half the position left to lose on.
In your example you fail to take account of the probability of reaching 4.5 points but not reaching 9.
The scale out method will bank profit in this scenario (0.75 pts/lot) while the classic method will lose money.
Quote from Buy1Sell2:
I have addressed this numerous times. You do your homework and come up with a system that has decent expectancy and then you let the trade run to that target . Whether or not I as a trader can pick optimal targets is not the question. Whether or not a trader can pick the exact top is not the question. The question is whether or not after defining your profit target that you have set for yourself, it makes sense to get out of some of the position prior to maturity. The answer is no.
Quote from volente_00:
B1S2, run the same example for 2 point target and 2 point stop between the 2.
Quote from Buy1Sell2:
Of course they don't have the same stop loss once you scale out and move the stop up. They also don't have the same ability for profit. Let your trades run to your target whatever that may be. Over time you will be much better off. The strategy of scaling out and moving stop to breakeven is a strategy to keep from losing anything. It is not a strategy designed to win big.
Quote from Buy1Sell2:
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss
1st example without scaling out
10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions
2nd example with scaling out half at 1 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
5 winners 1X(4 Contracts) =20 pts($1000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net loss before commissions=-$1000
Quote from volente_00:
Then why do you list them as both having the same stop loss amount in your example ?
Quote from Buy1Sell2:
After maturity is a new trade setup with entirely different percentage expectancies. Let's be honest, when you define a system you are calculating the probabilities of a trade reaching maturity. If the trade after maturity still had a high expectancy why would you take any of it off. Better homework would define a better maturity "area". In any case, the trade after maturity would follow the same guidelines--it would be better to not scale out of the trade that you left on.
Quote from volente_00:
2nd example can't lose on 4 contracts if they scaled out and only have 2 remaining. The two traders can not have the same loss amount total if one scales out.
Quote from Buy1Sell2:
Because even though the total dollar stop loss would be different when you scale out, a person employing the breakeven strategy would be moving their stop up to breakeven as well when they didn't scale out while giving themselves the opportunity for more profit. Once the trade moves in your direction, I have no problem using a trailing stop, but the profit target remains intact and shoule be allowed to be reached. You are making ny case by leaps and bounds and it started with you saying that the scale out trader needs a higher winning percentage to be as profitable as the non scaler.
Quote from thenewguy:
When you calculate odds on a trade there's more than just the % chance of it hitting your profit target. What's the % time there's a signifigant % move after your target? It makes sense (depending on your system) to leave a small portion of the trade on to capture a very large move that happens a small % of the time.
Furthermore, you consitently deny that this has anything to do with profit targets, but in your rebuttal you keep say "better homework would define a better maturity area"??? I'm a little dense sometimes, but isn't that the same thing?
TNG
Quote from Buy1Sell2:
Also, can't lose when the non scaler moves his stop up tp breakeven as well. Thanks Vol very much for your input today. It has helped enormously. And I mean this in a very nice way.
Quote from Buy1Sell2:
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss
1st example without scaling out
10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions
2nd example with scaling out half at 1 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
5 winners 1X(4 Contracts) =20 pts($1000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net loss before commissions=-$1000
__________________
Romik
Quote from thenewguy:
Furthermore, you consitently deny that this has anything to do with profit targets, but in your rebuttal you keep say "better homework would define a better maturity area"??? I'm a little dense sometimes, but isn't that the same thing?
TNG
Quote from volente_00:
Your numbers are flawed. You can not have the same loss. The case of the scale out trader is that his loss will be half as much as the other trader because he only has half the position left to lose on. True he might not gain as much profit but his loss amount will be far less to offset that.
The case is that if you use scaling out you end up being a higher % trader because you have a higher probability to profit on every trade due to reduced risk.
Quote from romik:
you should scale out at 2 points, not 1 point.
Quote from volente_00:
I disagree, the non scaler will still lose because of commissions.
The scaler has already locked in his profit so even if it comes back to breakeven on the remaining half he still ends up making money on the trade unlike the non scaler.
Quote from volente_00:
In my example I told you of how I sometimes scale out at 2 points on ES and let the rest ride, Your example assumes that you scale out early every time before your point target is reached.
Quote from romik:
you should scale out at 2 points, not 1 point.
Quote from Buy1Sell2:
At the point wher you scale out and I stay in and we both move stops to breakeven, there is no chance that you, scale out trader will have a higher winning percentage. However, you will have less chance to profit on the trade. If I am a breakeven strategist, it would make more sense to leave the whole trade on.
Quote from Buy1Sell2:
2 pts was the mature profit target in this example. That wouldn't be scaling out, that would be letting the trade mature.
Quote from volente_00:
That is a good point, So is scaling out still inferior if it is done at your initial point target ? In my example I told you of how I sometimes scale out at 2 points on ES and let the rest ride, Your example assumes that you scale out early every time before your point target is reached.
Quote from volente_00:
That is a good point, So is scaling out still inferior if it is done at your initial point target ? In my example I told you of how I sometimes scale out at 2 points on ES and let the rest ride, Your example assumes that you scale out early every time before your point target is reached.
__________________
Romik
Quote from Buy1Sell2:
While you would let the rest ride, I would be letting the whole trade ride. If my system tells me that it goes to 6 points 50 percent of the time, there is no sense getting out of any at 2 pts especially if the stop has been moved to breakeven.
Quote from volente_00:
so answer the question,
Is scaling out inferior if you let it hit your profit target and then start to scale out ?
I understand your point about cutting yourself short and selling at only half your initial point target.
Quote from illiquid:
Scaling is all about finding a "better (aka current/updated) maturity area", only you are doing it in real time. What you are doing by scaling is placing greater weight on the results of recent trades, while giving less weight to the result of past trades (where the "optimal" exit has been calculated from) -- an analogy would be an EMA vs an MA on "maturity", so to speak.
Quote from Buy1Sell2:
This has nothing to do with you figuring out what is the best postion size. It assumes that you have already done your homework! Once you have your position size set and your system expectancy set, that's when my assertion kicks in. You trade whatever your position size is to it's maturity. You don't scale out unless you have defined a position size that is too large from the beginning and are afraid. That's it--don't make this too complicated.
Quote from volente_00:
so answer the question,
Is scaling out inferior if you let it hit your profit target and then start to scale out ?
I understand your point about cutting yourself short and selling at only half your initial point target.
Quote from romik:
Hypothetically speaking, you have 10 2 lot trades running to 2 point target ($2000) and the rest can be anything ie average for the remainder can be +4 points or + 5 or +2 or +7, etc.
And once the threshold of the average +2 points for remaining position is broken, scaling starts beating "all out" PnL.
Quote from Buy1Sell2:
If the percentage of winners running beyond your profit target is great enough , then it would be an inferior system. If 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).
Quote from Buy1Sell2:
What is the percentage of the trades that are profitable past the 2 points. Once you know that, then a decision can be made as to whether or not the whole position should be exited there instead of really at the 2 pts. If the trades going past have a low enough winning percentage, it would make no sense to let the rest ride. If the percentage is high enough, then the whole position should be allowed to ride. Every trader must do their homework on their individual system to determine their entries and exits. Once that is developed properly, it makes no sense whatsoever to scale out.
Quote from volente_00:
Because 80-85% of the time I can get the sure 2 points multiple times per day. On a 6 point range day you will get nothing with that system.
name some of these people?
Quote from volente_00:
Do you think it is just coincidence that the best S&P traders in the world focus on small points and large size ?
EDITED SCALE OUT VERSION
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss
1st example without scaling out
10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions
2nd example with scaling out half at 2 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
2 breakeven X(4 Contracts) =0($0)
1 winner 3X(4 Contracts)=12pts ($600)
1 winner 4X(4 Contracts)=16pts ($800)
1 winner 10X(4 Contracts)=40pts ($2000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net profit before commissions=+$1400
__________________
Romik
Quote from thenewguy:
Not true. If you scale out %90 of your trade at your target price and let %10 ride, where is the emphasis?
TNG
Quote from Buy1Sell2:
How often can you get 6 points with a 2 point stop? How often can you get 8 points with a 2 point stop? How often can you get 9 points with a 3 point stop? These types of questions each trader must answer as they define their system prior to trading. This thread is not about that. It is about once a system is defined by the trader, does it make sense to scale out. Over time, the resounding answer is no.
Quote from m4a1:
name some of these people?
Quote from ashcroftsinger:
B1S2: If I understand you right, you are saying one or more of the following
1. Position sizing should always be independent of market chararacteristics,
2. Attractiveness of a trade does not change once it is entered, and remains at the pre-determined level
3. Edge is derived only from entry and exit rules/ levels
Under any or all of the above assumptions, i can see your argument about all-or-nothing exits are valid. (then there is the issue of scale-in and the asymmetry of logic when it comes to scale out)
Since i disagree with all the three assumptions above, IMO scaling out can be a valid part of a system.
Quote from volente_00:
That is whay your are advocating with 3 to 1.
The answer is with a 1 to 1, and a 2 point stop and scaling out half at 2 points gives you the chance to capture more points on the move while exposing yourself to zero risk if your are wrong while the all or nothing trader choices are to only get 2 points or expose their self the whole time to a monetary loss while trying to gain more than 2 points.
Quote from volente_00:
It's not about the % rate, it is about how many points it averages. It can only be 30% but if it goes on to capture just 1 10 point move it becomes a viable strategy.
Quote from volente_00:
My argument is you have a higher % chance of catching just 2 points in an ES trade with 5 times as much size versus trying to capture 10 points over a longer time frame with 1/5 of the size. The monetary risk is exactly the same for both trades.
__________________
I'm handing you no blarney
Quote from romik:
EDITED SCALE OUT VERSION
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss
1st example without scaling out
10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions
2nd example with scaling out half at 2 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
2 breakeven X(4 Contracts) =0($0)
1 winner 3X(4 Contracts)=12pts ($600)
1 winner 4X(4 Contracts)=16pts ($800)
1 winner 10X(4 Contracts)=40pts ($2000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net profit before commissions=+$1400
Quote from Buy1Sell2:
1. Position sizing should never be too large for a trader where the stop loss would exceed 2 percent of total liquid net worth. If you want to use smaller positions than that, fine. If you want to adjust your position size with the market on the entry signal that is fine, just don't exceed the 2 percent rule. Whatever the size that you use, the trade should be allowed to run to maturity. You would be better off long term trading only signals that allow you to use the same size or scale into the same size each time (per market).
2. Attractiveness of trades do change, but you rely on your backtesting to tell you what the percentage of winners is. If you see an obvious reversal while the trade is on, you exit fully not partially.
3. The only true edge in trading is capital and the management thereof. Entries and Exits are part of that management.
Quote from romik:
EDITED SCALE OUT VERSION
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss
1st example without scaling out
10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions
2nd example with scaling out half at 2 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
2 breakeven X(4 Contracts) =0($0)
1 winner 3X(4 Contracts)=12pts ($600)
1 winner 4X(4 Contracts)=16pts ($800)
1 winner 10X(4 Contracts)=40pts ($2000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net profit before commissions=+$1400
__________________
Romik
Quote from illiquid:
The emphasis would just be 10% more towards the present trade, as opposed to relying 100% on the past "optimal" target.
The way I look at it, given the way I trade, (look ma no blanket) scaling is done in conjunction with a flexible outlook, as opposed to a closed, rigid one -- systemizing a scaling exit almost defeats the purpose in my opinion. You can argue ad infinitum comparing system A and system B, but that is besides the whole argument for me.
Quote from illiquid:
What you are doing by scaling is placing greater weight on the results of recent trades, while giving less weight to the result of past trades (where the "optimal" exit has been calculated from) -- an analogy would be an EMA vs an MA on "maturity", so to speak.
Quote from ashcroftsinger:
Here is essentially what my disagreement is about. IMO, position sizing need not be determined ony by personal risk profiles (2% etc.) it could also be determined by how attractive a trade is, what are the current market conditions etc.
This is quite similar to Ed Thorp's position sizing for blackjack strategies. As the deck becomes more favorable, increase your size of the bet, as it deteriorates, decrease your size of the bet, not necessarily in a binary fashion.
Quote from romik:
What happens after the scale out is unpredictable future average, only past results will indicate true average.
I see m4a1 made a short call in ES J where he is attempting to use a 1:3 using a specific entry strategy, right now there is a reversal signal going on, he is obviously holding, when a scale out trader would have pulled out of 50% position and/or reversed the trade. Is m4a1 to hold this position till he is -2pts down or exits at entry is irrelevant. A scale out trader has made a profit when m4a1 will either make 0 or incur a loss.
Quote from Buy1Sell2:
I'm fine with the adjusting sizes to your tastes as long as the 2 percent rule is not violated. But once in the trade, you stay for the duration unles you see obvious reversal. No sense getting out of a winner.
Quote from Buy1Sell2:
If there is an obvious reversal signal , you get out of the full position not part.
__________________
Romik
Quote from thenewguy:
According to your argument, why wouldn't you take the largest statistical move the instrument has ever made and use that as a price target? Your math is correct in that if the price target actually has ANY chance of occuring at all, it's best to hold full size to that. How do you know that ahead of time however?
TNG
Quote from romik:
same as with a scaled out trade
Quote from Buy1Sell2:
Getting out of the full position is not the same as scaling out. If there was an obvious reversal signal why would you leave some on?
__________________
Romik
Quote from romik:
I wasn't saying that, crossed wires again.
Quote from Buy1Sell2:
Now run the first example with the higher profit targets that woud be achieved by letting the trade run( I believe you had one trade run to 10 points). Also, remember that we would get out at breakeven on two as well.
__________________
Romik
Quote from romik:
EDITED "all out" VERSION
50 % winning percentage 4 ES Contracts 20 trades 6 pt target 2 pt loss (3:1)
1st example without scaling out
10 winners 6X(4 Contracts) = $240 pts ($12000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit +$8000 before commissions
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss
2nd example with scaling out half at 2 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
2 breakeven X(4 Contracts) =0($0)
1 winner 3X(4 Contracts)=12pts ($600)
1 winner 4X(4 Contracts)=16pts ($800)
1 winner 10X(4 Contracts)=40pts ($2000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net profit before commissions=+$1400
EDITED "all out" and "scaled out" VERSION
50 % winning percentage 4 ES Contracts 20 trades 6 pt target 2 pt loss (3:1)
1st example without scaling out
10 winners 6X(4 Contracts) = $240 pts ($12000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit +$8000 before commissions
50 % winning percentage 4 ES Contracts 20 trades 6 pt target 2 pt loss (3:1)
2nd example with scaling out half at 6 pt
5 winners 6X(4 Contracts) =120 pts ($6000)
2 breakeven X(4 Contracts) =0($0)
1 winner 7X(4 Contracts)=28pts ($1400)
1 winner 8X(4 Contracts)=32pts ($1600)
1 winner 10X(4 Contracts)=40pts ($2000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net profit before commissions=+$7000
In this example a reward/risk is identical 3:1, BUT (and that BUT is pretty important here IMHO) what happens in the scaled out example is a constantly changing average for the remaining 50% position, sometimes the end result will beat "all out", sometimes it will equal and sometimes it will be less. Inferior or not is determined by the average intraday range, which affects both strategies.
__________________
Romik
Quote from romik:
, sometimes the end result will beat "all out",
What an epic struggle this thread has turned out to be.
I just dont know whether to scale out of it or just close out.
Maybe I will look back in 6 months time.
Quote from fearless9:
What an epic struggle this thread has turned out to be.
I just dont know whether to scale out of it or just close out.
Maybe I will look back in 6 months time.
__________________
Romik
Quote from romik:
I think the ones that do not want to read discussions here can easily unsubscribe from the thread. There is an easy decision for you. So far it's been an interesting read-up.
Quote from Buy1Sell2:
But not in the long haul over time.
__________________
If at first you don't succeed ...
This is impressive JJ.
Do you trade this way?
Quote from fearless9:
This is impressive JJ.
Do you trade this way?
__________________
If at first you don't succeed ...
If you enter a position based on a setup or reason then you stay with the trade until this reason disappears or changes. Only then do you close your position. right?
So if you retain part of your trade its not based anymore on your original setup but just based on the hope that your position may further improve. At this point the basis of your trade is just hope and emotion.
Trades based soley on emotion have a negative expectancy as we all know, probably the reason why 90 % loose.
Same goes for averaging down. If you average down just to save your ass in a bad position the original reason for entering the trade is violated. It also tends you to close out the position as soon as you as you might break even and not ride out the position as originally planned.
__________________
go with the flow
Quote from whoispaul:
If you enter a position based on a setup or reason then you stay with the trade until this reason disappears or changes. Only then do you close your position. right?
So if you retain part of your trade its not based anymore on your original setup but just based on the hope that your position may further improve. At this point the basis of your trade is just hope and emotion.
Trades based soley on emotion have a negative expectancy as we all know, probably the reason why 90 % lose.
Quote from Buy1Sell2:
This isn't quite what I was looking for.
Quote from illiquid:
Curious, what exactly were you looking for in starting this thread . . .
70+ pages, glad it worked out.
Quote from whoispaul:
If you enter a position based on a setup or reason then you stay with the trade until this reason disappears or changes. Only then do you close your position. right?
So if you retain part of your trade its not based anymore on your original setup but just based on the hope that your position may further improve. At this point the basis of your trade is just hope and emotion.
yes if you think entirely in probabilities this might be true. yet, by legging out, one of your position will always be wrong.
however, i am restricting myself to position trading and entering and exiting is based only on the original setup or reason. this also helps a great deal in removing anxiety when the position moves in the wrong direction.
most losing decisions are made in the face of adverse conditions based on emotions. by sticking with your original setup you dont have to live thru the agony of this.
__________________
go with the flow
B1,
I have a question. You are saying that scaling out is inferior and is basically a by product of being under funded and over leveraged. Since a lot of traders cannot help the fact that they are underfunded they work with what they have. In their situation using sometimes maximum leverage would scaling out and saving yourself from having a heart attack be the right thing to do? I know I am going overboard with the heart attack but you know what I mean.
Now I know the smart thing is to reduce your margin and be safe but most people want their money and want it now. In their case maybe scaling out would be the best fit for them. Not saying the most profitable just the best fit.
Gary
Quote from 4re:
B1,
I have a question. You are saying that scaling out is inferior and is basically a by product of being under funded and over leveraged. Since a lot of traders cannot help the fact that they are underfunded they work with what they have. In their situation using sometimes maximum leverage would scaling out and saving yourself from having a heart attack be the right thing to do? I know I am going overboard with the heart attack but you know what I mean.
Now I know the smart thing is to reduce your margin and be safe but most people want their money and want it now. In their case maybe scaling out would be the best fit for them. Not saying the most profitable just the best fit.
Gary
Quote from whoispaul:
most losing decisions are made in the face of adverse conditions based on emotions. by sticking with your original setup you dont have to live thru the agony of this.
Quote from Buy1Sell2:
Thanks for the question Gary. I am going to give a response that may anger some, but is the correct response. An individual who is underfunded and /or overleveraged needs to drop down to markets like mini beans, corn or oats that have low face values or ETF's etc at 1to1 and trade for position until they get their grubstake built. If they are overleveraged in those markets , then they really need not trade until they can build their account by saving etc.
Trailing stops, yes. Scaling out no. They really should not be in over their heads though, that's what causes people to scale out. No sense learning wrong and developing bad habits.
Quote from 4re:
Yes, you and I know this. I built my account by trading options. But we also know that this is not going to happen. I would say more people are going to trade with max leverage than not. So with these guys in mind would scaling out or even trailing stops be a viable alternative?
scaling out is just not a viable trading idea. again, you have to get out of your trade because your original reason for it has disappeared.
why stay in after that?
__________________
go with the flow
Quote from Buy1Sell2:
Trailing stops, yes. Scaling out no. They really should not be in over their heads though, that's what causes people to scale out. No sense learning wrong and developing bad habits.
Quote from 4re:
Ok, Just asking because I imagine quite a few people that could be reading this might be the ones I am talking about. I think most here know that I don't scale in or out. Nor do I trail my stops. I don't agree or disagree with any of these I just don't do it. Case in point. My options trade that I have been in since july was about .40 cents from my target this morning. I was hoping that it would hit today but just didn't make it. I have just about decided that since I have made very nice profit on it I might let it run anway or I could have gotten scared out of the position by this afternoons sell off. I am going to let it keep going until I have a clear signal to get out.
__________________
Romik
Quote from romik:
Hi Gary, but do you remember that CAL trade where my PT was different to yours, yours got hit and I decided to wait and instead of 28% profit ended up with something like 8%? Not certain at the moment. Both trailing and scale out would have provided a better ROI on that trade with my PT.
B1S2 I think you are forgetting to include probabilities in your calculations. Take a look at this:
scaling
contracts odds payout ev
1 0.9 10 9 %90 going to 10
1 0.01 11 0.11 %1 going to 11
9.11
all out
contracts odds payout ev
0 0.9 10 0 %90 going to 10
4 0.01 11 0.44 %1 going to 11
0.44
This is scaling out one contract at 10, letting the other run to 11. The second is letting the entire trade run to 11. I've used a %1 chance as an extreme measure to show the results. There is a point where your ev is higher letting the whole trade run, but it's a function of probabililty x payout.
TNG
EDIT: formatting sucks, looked good when i typed it in though...
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
Re: Re: "Scaling out" is inferior behavior
Quote from kut2k2:
I get two signals only: enter and exit.
If I get multiple enter signals, I scale in.
Once I get an exit signal, I'm all out -- nothing halfassed.
When you come to a stop sign, you're supposed to stop, not do a slow roll through it.
There's a very good reason for the old adage: Cut your losses short.
Re: Re: Re: "Scaling out" is inferior behavior
Quote from volente_00:
Some of come to yield signs instead and when we do,
we drop some folks off, put our seatbelt back on and continue on the direction we were heading without any risk to the passengers that have left the ride.
Re: Re: Re: Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Unfortunately some of the passengers end up being disappointed having paid for the full ride but getting dropped off early.
__________________
If at first you don't succeed ...
This thread is a classic example of the difference between those who "trade" via hindsight and those who trade in real time.
It also highlights the difference between those who trade for real and those who trade theoretical constructs which are based on backtests and on what they've read.
LC
Quote from Lamont_C:
This thread is a classic example of the difference between those who "trade" via hindsight and those who trade in real time.
It also highlights the difference between those who trade for real and those who trade theoretical constructs which are based on backtests and on what they've read.
LC
__________________
If at first you don't succeed ...
That's technical trading for you.
dumb thread.
look, there is no one RIGHT WAY.
also, it depends on the instrument you trade, your risk parameters, your target parameters, your time frame, etc. etc. etc.
i trade futures.
i make my income doing so.
90% of my futures trade volume is intraday scalps.
i never (certainly less than 1/100 of my trades) add to a winning position.
i scale out.
it works, and i make an excellent income. but it's within my overall methodology.
with other instruments, etc. i do add to winning trades. stocks come to mind. in certain types of trades.
but these dumb arguments like "never add to a losing trade", "never scale out" blah blah blah are just a bunch of ego traders (and ego traders usually lose money to professionals in the long run) trying to extrapolate from the individual to the aggregate.
traders start making money when they develop a methodology with an edge, and manage their risk, such that the edge can work out over time.
if your methodology allows you to add to winning trades, more power to you.
when i INVEST (vs. trade) I add to winning and losing INVESTMENTS. that's the methodology.
futures, at least index futures, on an intraday basis - TEND to rotate around value, to use market trader parlance. adding to winning trades (imo and ime) based on my time frame for being in trades (3 seconds to a few hours) more often than not result in me buying near a top, or selling near a bottom. scaling out results in profits being locked in, and my trades becoming "riskless" when my stop is gradually moved in the direction of the trade.
that works for me. i am not going to say it's right or wrong, for all instruments, on all time frames.
so, arguments like this are dumb.
but i'm engaging in it, so what does that say about me ?
Quote from whitster:
traders start making money when they develop a methodology with an edge, and manage their risk, such that the edge can work out over time.
__________________
If at first you don't succeed ...
Re: Re: Re: Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Unfortunately some of the passengers end up being disappointed having paid for the full ride but getting dropped off early.
Quote from JimmyJam:
... thank you. You've made the best arguement yet for not scaling out.
JJ
When you scale out and keep some on, you must have done your homework to determine expectancy. If the expectancy is high enough then it makes sense to leave the entire position on instead of scaling out. If the expectancy is not high enough, then it makes sense to exit the full position at the lower level. Traders must do their homework and determine expectancies at different sizes of moves when their signals occur. You find the size of the move that has the best expectancy without being stopped out and you leave the whole position on. There is no sound argument against this position.
Re: Re: Re: Re: Re: "Scaling out" is inferior behavior
Quote from volente_00:
Who said they left early ? I took them to the promised destination, half chose to exit, and the other half tipped me extremely well for taking them further into the journey than the original plan.
Quote from Buy1Sell2:
When you scale out and keep some on, you must have done your homework to determine expectancy. If the expectancy is high enough then it makes sense to leave the entire position on instead of scaling out. If the expectancy is not high enough, then it makes sense to exit the full position at the lower level. Traders must do their homework and determine expectancies at different sizes of moves when their signals occur. You find the size of the move that has the best expectancy without being stopped out and you leave the whole position on. There is no sound argument against this position.
__________________
If at first you don't succeed ...
Quote from whitster:
i scale out.
it works, and i make an excellent income. but it's within my overall methodology.
Ok. So, since you take the position that scaling out is inferior (and I don't necessarily agree/disagree) what IS your suggested methodology that DOES improve returns considerably? Where, how and when are you suggesting people exit their trades? Hopefully you'll have a solid answer, otherwise this whole thread is just smoke from a newbie with enough time on his hands to make 3500+ posts in a few months. That's probably where you excel.
Quote from Buy1Sell2:
Thanks for posting and congratulations on a profitable account. You are in the super minority. That said, you would be more profitable by not scaling out. Every trader who is profitable would be. Every unprofitable trader would either become profitable or lose less if they did not scale out. Scaling out is robbing YOU of further profits. Remember, I never said that a trader would not make money or even a handsome income by scaling out. I just said that it's inferior to not scaling out.
Quote from Buy1Sell2:
Thanks for posting and congratulations on a profitable account. You are in the super minority. That said, you would be more profitable by not scaling out. Every trader who is profitable would be. Every unprofitable trader would either become profitable or lose less if they did not scale out. Scaling out is robbing YOU of further profits. Remember, I never said that a trader would not make money or even a handsome income by scaling out. I just said that it's inferior to not scaling out.
Re: Re: Re: Re: Re: Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
The driver will be able to be tipped by all passengers at the final destination. By scaling out, the driver is dropping off half of the folks who would be able tip at the end.
B1S2, why did you scale into your short from 1260-1325 ?
"Thanks for posting and congratulations on a profitable account. You are in the super minority. That said, you would be more profitable by not scaling out. Every trader who is profitable would be. Every unprofitable trader would either become profitable or lose less if they did not scale out. Scaling out is robbing YOU of further profits. Remember, I never said that a trader would not make money or even a handsome income by scaling out. I just said that it's inferior to not scaling out."
first of all, i would not be more profitable by not scaling out. these predetermined scale locations are not arbitrary. they are based on the backtesting OF the setups I am using.
i have tested these setups. i know what would happen in various trades if I DIDN'T scale out, since I log each trade in excel, including the adverse move agaisnt me (if any) in each trade, how far the action moved AFTER i scaled out (if at all), etc.
and even IF i would be more profitable (which i wouldn't be with MY setups), profitability is not the only factor. there is also drawdown, percentage winning trades, etc.
i prefer my methodology for, among other reasons, i have the VAST majority of my days end up to be net winners (which means on a daily basis i suffer little to no drawdown), and my equity curve is smooth.
i trade to generate income, not to make a "big killing" on any one trade.
your attitude is typical of the know-it-all ego trader. since you don't know MY setups, you have no way of knowing (mathematically) whether I would make more money by not scaling out. i do know, since i know the expectancies and the price action that typically happens in these setups.
my targets are DIFFERENT for different setups because they have difference expectancies, and different probabilities of turnaround, etc.
what you are doing is applying a very narrow ideology to a very broad area, and one you know nothing about - the setups i am using.
i do know, from my excel data, as well as backtesting, that even moving my first target (i have 3 targets on some setups, 1 target on some , etc. it depends on the setup) out ONE TICK significantly changed my profit factor.
over the course of hundreds of trades, i fine tuned my exit targets to offer the best balance of profit potential, minimization of drawdown, etc.
my point is it works for me, for MY setups.
and anybody who is so ignorant that they claim they know that scaling out would offer GREATER profits without even knowing what the setups ARE is clearly operating from a position of ignorance or arrogance.
and to repeat. i am talking futures scalps. these are not swing trades, nor investments. i have some investments i have held for 10 yrs. those , i do not scale out. it depends on the instrument, the setup, and the desired goal of the trader, the position sizing, etc. etc. etc.
you have an incredibly ignorant mindset if u believe you know what would work better for me, without even knowing what the setups are, and why the targets are as they are.
but again, i suspect you are yet another ego trader. the kind that professional traders take money from. thanks for playing. we need you.
Quote from whitster:
i trade to generate income, not to make a "big killing" on any one trade.
Quote from whitster:
your attitude is typical of the know-it-all ego trader. since you don't know MY setups, you have no way of knowing (mathematically) whether I would make more money by not scaling out.
and one you know nothing about - the setups i am using.
my point is it works for me, for MY setups.
and anybody who is so ignorant that they claim they know that scaling out would offer GREATER profits without even knowing what the setups ARE is clearly operating from a position of ignorance or arrogance.
Quote from traderNik:
Exactly the point I was trying to make earlier in the thread. The OP didn't seem to be able to catch on. I scale out for many of the same reasons you do.
Bingo. Amazing that someone would even try to defend the position that he knows best what tactics are going to work for strategies that he isn't employing and doesn't know anything about. That is, unless the OP is claiming that he knows every trading strategy ever devised by anyone.
he also fails to recognize that index futures contracts move with a different dynamic than many stocks, and certainly different than the type of "breakout trades" or 'trend trades" that many day and swing traders play in the equities markets.
for example, 4-6 days a month is the average # of days that fit a "trend profile" for the index futures. clearly, a strategy(s) that mostly relies on wider stops and bigger moves and breakout strategies must either sit out most index days, or make a lot of losing trades.
this is differnet from swing and equity trading where one can CHOOSE their instrument based on its current price action
i trade the exact same instrument every day. i have to respond to what it is doing.
i have just over 20 setups, but i have some that i have not used in over a month, others that i might use several times in one day, and not once in another. it depends on what the market is doing.
one setup, i checked the stats for the purpose of this discussion has given me
here's an example of one trade setup results over the last two months to illustrate my point. remember, this is ONE setup. it is a relatively common one. sometimes, multiple times per day. some days - zero occurances.
(cue data...)
84/102 trades made money
(82%). So, if i enter this trade, i have an 82% chance it will make me $$$. it's a hi probability, small target trade.
average pts per trade: 6.3 (*3 contracts)
biggest loss: 11 points (note I set a 10 pt stop for this setup, but on a few occasions i had 1 pt slippage on my stop)
greatest #of pts: 38
in the vast majority of circumstances, at least my first target was met on this trade (it was approximately 82%, but slightly different due to the premature exits on some trades, meaning the %age of positive and first target trades is SLIGHTLY different). on this trade, as soon as my first target is met (5 points), i move stop to entry +1 on my second 2 contracts. so, if i stop out, i make 5 pts on one contract, and make more than slightly break even on 2 (the 1 pt over the breakeven is commission + about $.50 per contract).
a smaller percentage i make the first two targets +5, +8
upon making the 2nd target, I keep my stop at +1 and there are various (discretionary criteria for exit).
my rules for ALL trades, are never widen a stop, but i can move stop in (on certain criteria- like target being met), or exit prematurelty, if certain factors are present (whether for a loss or gain).
but, on a fair percentage of trades, i was stopped out after the first target was met (it reversed and hit my stop).
i could go back and crunch the #s (over a larger time period for robustness) to see if maybe scaling out 2 of 3 contracts @ +6 would give better positive expectancy, but last i checked - it didn't.
enuf trades met my 2nd target to justify the wider target, etc. etc.
this is just an example, but it shows the absurdity of the poster believing that he KNOWS that i would do better by not scaling out, when he doesn't even know the trade setups i am using.
"the op has a long term passive investor mentality where scalin' out may not be the best approach to maximize profits"
which again shows his logical fallacy he is employing.
example:
i have been in PIXR since steve jobs took over. I added on weakness on a few occasions and pared off on one extreme, but NEVER scaled out, in the sense that my position now is relatively larger than it was in the past. i have a trailing stop to lock in plenty of profit. that's it.
but that's a different instrument, a different time frame, and a different trading methodology (i invested in PIXR purely on fundamentals. well, pretty much purely. i didn't ignore the charts, but i invested mostly on management, product placement, etc. not price action)
i'm not suggesting this is the RIGHT way to trade INDEX futures.
which of course is my point about the diferences due to instruments, setup, time fram, etc
Quote from Buy1Sell2:
When you scale out and keep some on, you must have done your homework to determine expectancy. If the expectancy is high enough then it makes sense to leave the entire position on instead of scaling out. If the expectancy is not high enough, then it makes sense to exit the full position at the lower level. Traders must do their homework and determine expectancies at different sizes of moves when their signals occur. You find the size of the move that has the best expectancy without being stopped out and you leave the whole position on. There is no sound argument against this position.
Most portions of trading are dependent on the individual and how they trade. This however is not one of them. You see, a person doesn't need to know what someone's setups are or what indicators they use. The truth is that no matter what the setups are, they should always be run to their maturity. Scaling out chokes any system and any setup over time. Again, no one is saying that money can't be made scaling out, but you will make less of it by doing so. That's a stone cold fact.
Quote from whitster:
[B
my targets are DIFFERENT for different setups because they have difference expectancies, and different probabilities of turnaround, etc.
[/B]
Quote from Lamont_C:
You take the approach of a gambler, not that of a professional trader.
LC
Quote from Buy1Sell2:
Most portions of trading are dependent on the individual and how they trade. This however is not one of them. You see, a person doesn't need to know what someone's setups are or what indicators they use. The truth is that no matter what the setups are, they should always be run to their maturity. Scaling out chokes any system and any setup over time. Again, no one is saying that money can't be made scaling out, but you will make less of it by doing so. That's a stone cold fact.
Quote from Buy1Sell2:
Bingo. You have made my point for me. For each individual setup, the trade should be allowed to run to maturity. No one said that the same target was to be used for each set up.
Quote from Buy1Sell2:
I am probably the farthest away from a gambler that a trader could be. I am extremely risk averse.
Quote from risktaker:
Ok. So, since you take the position that scaling out is inferior (and I don't necessarily agree/disagree) what IS your suggested methodology that DOES improve returns considerably? Where, how and when are you suggesting people exit their trades? Hopefully you'll have a solid answer, otherwise this whole thread is just smoke from a newbie with enough time on his hands to make 3500+ posts in a few months. That's probably where you excel.
Quote from Lamont_C:
If so, then you wouldn't be relying so much on the hope that you reach your "target". When you depart from your backtest and begin trading for real, you'll discover that.
LC
Quote from Buy1Sell2:
I have been trading real money for 26 years. My backtesting is real time trading.
Quote from traderNik:
Actually, no.
The idea that you can know what 'maturity' is beforehand is a fallacy.
As simple as it is, this idea seems really really tough for you to understand.
It seems that your approach to trading is to gamble for the big win as opposed to making steady gains. This might work. Or it might not.
Quote from traderNik:
Oops. Now this was a slip up.
I hope you read this post over and figure out what I mean. 26 years? Hmmm....
That post more than any other makes me think that you may not have traded real money in the past.
by the way.... 3500 posts in a few months is a bit weird. After all, the question is..... why??
Quote from Bitstream:
the op has a long term passive investor mentality where scalin' out may not be the best approach to maximize profits. he has absolutely no clue about the mechanics of daytradin' since he already said he consider daytradin' and tradin' the open inferior behavior as well. just no wonder he cant possibly be aware that scalin' out is not only effective but also a necessary 'evil' in many circumstances, especially on thin issues that spike all day in matter of minutes if not seconds.
Quote from Buy1Sell2:
The main point here is that if the desirable target is 5 pts, you don't get out of any at 4 pts. It just doesn't make sense.
Quote from Buy1Sell2:
My approach is to let trades run using trailing stops.
Quote from volente_00:
If you would have included this in your original post this thread would have never went this far. You still have to take into account what you want out of the trade and what the market is willing to give do not always agree. If you a had an ES trade on with a 10 point target and a 10 point stop and it ran 9 point in your favor, and then reversed, how far would you let it fall back before you admit you were wrong on the trade ? Would you let it run -19 back to original stop because of greed to make 1 more point ?
Quote from volente_00:
How do these stops figure into the 2% rule ?
Ex: say the trade is 20 points in your favor, what type of trailing stop will you have on this trade in order to keep noise from taking you out of it ?
Quote from Buy1Sell2:
A trader who has determined that 10 is the optimal number of points would wait for the 10 without question. If the market exhibits obvious reversal,then you exit completely with no scale out. If it doesn't exhibit obvious reversal, then he will most likely get those full 10 points. Personally, I use trailing stops in the direction of the trade unless I am building a position starting extremely small. Once I get the size on that I desire, then certainly stops are in outside reaction highs/lows. What the prudent trader would do with the 9 point profit is use a trailing stop so that the -19 does not occur, while leaving the entire position on to get the 10 pts.
Quote from volente_00:
How big of trailing stop would you use in this situation ?
Quote from Buy1Sell2:
Trailing stops are always outside reaction highs/lows, never in the noise. That stop must make sense with regard to the 2 percent based upon the current total liquid net worth.
Quote from Buy1Sell2:
A trader who has determined that 10 is the optimal number of points would wait for the 10 without question. If the market exhibits obvious reversal,then you exit completely with no scale out. If it doesn't exhibit obvious reversal, then he will most likely get those full 10 points.
Ok, help me out here.
Say I have a full position avg short on from 1393 right now in ES. Where will my trailing stop be at this point in time ?
Quote from Buy1Sell2:
Those who use profit targets can definitely determine how often a trade runs a particular number of points.
Wow this thread keeps getting longer going nowhere. It will rival the "trendfollowing delusion shattered" thread quite soon at this rate.
B1S2 trades his long-term technical "trendfollowing" methodology (aka "hope I got lucky and fundamentals agree with my position this time"), everyone else trades everything else, and never the twain shall meet. You'll have better luck in the Religion and Politics forum for seeing someone change their minds.
Quote from volente_00:
So if the reaction low was more than 20 points, you would place the stop that far out which could result in a winning trade turning into a loser ?
Quote from volente_00:
Ok, help me out here.
Say I have a full position avg short on from 1393 right now in ES. Where will my trailing stop be at this point in time ?
I've seen many traders go broke letting winners turn into losses. But if it works for you, more power to ya.
Quote from traderNik:
I see. You can determine this at the moment you place the trade, right? For any particular trade?
Good Lord.
Quote from volente_00:
I've seen many traders go broke letting winners turn into losses. But if it works for you, more power to ya.
Quote from Buy1Sell2:
The market must show me obvious reversal
Quote from Buy1Sell2:
The markets don't trade outside reaction highs/lows very much without obvious reversal occurring.
Quote from traderNik:
oh my god
Quote from illiquid:
You see why he doesn't trade shorter-term . . .
Obvious reversals occur all of the time and are easily seen. It doesn't matter whether it is intraday or long term. I always defer to the recent reaction high/low first until I see obvious reversal.
look, again he is extrapolating from his (narrow) experience and (narrow) methodology into the theory that this is the optimal way to trade all setups, all time frames, all markets, etc.
mathematically he is wrong, statistically he is wrong, etc.
generally speaking, anytime ANYBODY makes this kind of generalized statement "doing X is always wrong" etc. they are arrogant, ignorant, and ego traders.
either that, or he is just trolling.
regardless, it doesn't matter. i come here to learn from others, and to share ideas. this person is not interested in learning, and his "ideas" are just his ego speaking, not his brain.
this reminds me of the thread were some nimrod was claiming that futures weren't zero sum (sans commissions). no amout of evidence would convince him otherwise.
trolls are trolls.
Quote from whitster:
look, again he is extrapolating from his (narrow) experience and (narrow) methodology into the theory that this is the optimal way to trade all setups, all time frames, all markets, etc.
mathematically he is wrong, statistically he is wrong, etc.
Define obvious reversal.
Quote from volente_00:
Define obvious reversal.
Quote from Buy1Sell2:
Is scaling out inferior to letting the trade run to maturity--Without question.
Quote from volente_00:
Define obvious reversal.
In hindsight everything is obvious.
dood.
if my setup is to take 5 pts on my first contract, 8 points on my second, and 12 points on my third.
and after the first contract, to move my stop, etc.
is that "scaling out?"
it now sounds by your definition, that this would not be scaling out, because it is TRADING MY SETUP
MY SETUPS (most of them) are defined by multiple targets.
so, is this or isn't this 'scaling out' by your (made up) definition.
real people, in the real world, define scaling out as not selling the whol thing at once.
Quote from whitster:
MY SETUPS (most of them) are defined by multiple targets.
so, is this or isn't this 'scaling out' by your (made up) definition.
Quote from volente_00:
This was not your original assertion but at least you corrected it.
Quote from whitster:
dood.
if my setup is to take 5 pts on my first contract, 8 points on my second, and 12 points on my third.
and after the first contract, to move my stop, etc.
is that "scaling out?"
it now sounds by your definition, that this would not be scaling out, because it is TRADING MY SETUP
MY SETUPS (most of them) are defined by multiple targets.
so, is this or isn't this 'scaling out' by your (made up) definition.
real people, in the real world, define scaling out as not selling the whol thing at once.
One could also make the case for inferior behavior with wide trailing stops and waiting to exit the trade only after an obvious reversal.
how is that relevant to whether or not it is scaling out?
methodology and positive expectancy are irrelevant here.
the point is that THIS IS HOW MY SETUPS ARE DESIGNED.
i am not getting into a semantical wank here.
so, let's define terms.
is that hedging, if i scale out - evne if the scaling is PREDETERMINED BY THE SETUP PRIOR TO TRADE ENTRY.
Quote from whitster:
how is that relevant to whether or not it is scaling out?
methodology and positive expectancy are irrelevant here.
the point is that THIS IS HOW MY SETUPS ARE DESIGNED.
i am not getting into a semantical wank here.
so, let's define terms.
is that hedging, if i scale out - evne if the scaling is PREDETERMINED BY THE SETUP PRIOR TO TRADE ENTRY.
Quote from volente_00:
One could also make the case for inferior behavior with wide trailing stops and waiting to exit the trade only after an obvious reversal.
Quote from whitster:
how is that relevant to whether or not it is scaling out?
methodology and positive expectancy are irrelevant here.
the point is that THIS IS HOW MY SETUPS ARE DESIGNED.
i am not getting into a semantical wank here.
so, let's define terms.
is that hedging, if i scale out - evne if the scaling is PREDETERMINED BY THE SETUP PRIOR TO TRADE ENTRY.
Quote from Buy1Sell2:
I have been trading real money for 26 years. My backtesting is real time trading.
So in theory you are entering these trades without a specific target in mind and riding them until a obvious reversal happens ?
Quote from volente_00:
So in theory you are entering these trades without a specific target in mind and riding them until a obvious reversal happens ?
You can guess that for alot of b1s2's trades, he gets shaken out by "obvious reversals" and gets left behind as the market continues fowards. I'm guessing his success doesn't depend upon correctly identifying reversals so much as getting lucky enough that a market has caught enough people off guard, facing the wrong way, that no "obvious reversals" will occur until a distant price point later. That's pretty much how technically-oriented trendfollowers make their money.
Quote from illiquid:
You can guess that for alot of b1s2's trades, he gets shaken out by "obvious reversals" and gets left behind as the market continues fowards. I'm guessing his success doesn't depend upon correctly identifying reversals so much as getting lucky enough that a market has caught enough people off guard, facing the wrong way, that no "obvious reversals" will occur until a distant price point later. That's pretty much how technically-oriented trendfollowers make their money.
Quote from Buy1Sell2:
For example, I look at 1000 pips on weekly Euro FX charts as a general guideline, but will ride it farther if I can.
B1S2,
When you say get out after an 'obvious reversal', is your reversal usually at the top ( eg: if you are long futures), rather than at the bottom/valley? That means you are usually out way before your trailing stop loss level. Thks
Volente,
Great questions. Many of the questions such as 'definition of obvious reversal' was what I wanted to ask. Thanks and keep up those questions.
Quote from volente_00:
One could also make the case for inferior behavior with wide trailing stops and waiting to exit the trade only after an obvious reversal.
Quote from billp:
B1S2,
When you say get out after an 'obvious reversal', is your reversal usually at the top ( eg: if you are long futures), rather than at the bottom/valley? That means you are usually out way before your trailing stop loss level. Thks
Thanks. I highly suspect that you were out near the highs instead of waiting for your stop loss to be taken out. If even half of your stop loss were to be taken out, then this method will not be good as one has given up a reasonably large portion of the profits back (regadless of whatever time frame it is)
Quote from Buy1Sell2:
Yes, that is right. I am out and have reversed well prior to the stop being taken out. It is a rare occasion using daily and weekly charts that I would be stopped out. Most of the time, I am out on my own accord. This includes the version of daytrading that I employ using low leverage and no "probes". When I was using the probe strategy, the losses were very small with a lot of stop outs and then I would ride the winning trade. Both methods are acceptable and both should be let run to maturity. Thanks for asking!
B1S2, you are skewing the probabilities in your favor to make your point. As you say, "it's simple math, and the numbers don't lie". I posted this before and you either didn't see it, or didn't respond to it. Using different probabilities makes scaling out much more profitable than not.
TNG
Quote from thenewguy:
B1S2, you are skewing the probabilities in your favor to make your point. As you say, "it's simple math, and the numbers don't lie". I posted this before and you either didn't see it, or didn't respond to it. Using different probabilities makes scaling out much more profitable than not.
TNG
the idea that there is *one* "optimal target" for all modalities, time frames, instruments traded, methodologies, etc. is where your logical fallacy is.
but again, you are either astoundingly ignorant, or a troll
Optimal targets are different for every time frame and set up. Once a trader has determined the optimal target for their own particular set up and time frame, then the trade must be allowed to reach maturity with the full position on, not part of it.
Quote from Buy1Sell2:
I saw it, but the format wasn't good. Probablilities come into play when designing what you think the target should be optimally. Once you have done that, then scaling out is the wrong thing to do. I agree that probablities are important, however they are a step that is taken before the trade occurs. Once the trade occurs, you must allow the trade to run full to the optimal target.
Directly from the Turtles Trading rules
Also directly from the Turtles Trading Rules:
Quote from Buy1Sell2:
Optimal targets are different for every time frame and set up. Once a trader has determined the optimal target for their own particular set up and time frame, then the trade must be allowed to reach maturity with the full position on, not part of it.
Quote from stormins:
And what If it doesnt reach your target and you close your position when you have to along with everybody else heading for the exit costing you $$ (since you are still full boat)?? Oh wait I guess you are just the seer that KNOWS exactly where the top/bottom of that move is, "maturity" as you so aptly called it ???
How arrogant can one be to think they can "determine the optimal target" and expect the market to cooperate every time?? No trader worth his salt can honestly say that they hit the top or bottom tick every time. As a matter of practicality you either sell too early ...or too late. Scaling allows you to do both.
lol
you are quoting the turtles trading rules to support your point???!!
which is exactly my point. optimal trading (and scaling vs. nonscaling ) VARIES depending on timeframe, trading methodology, etc.
the turtles trading methodology is a TREND following system
trend following systems RELY on (usually) having a lower # of winning vs. losing trades, however, a much higher amount won in winning trades vs. lost on losing trades.
in THAT type of methodology, not scaling can make sense
duh
again, you are extrapolating a narrow rule set for ONE methodology to all methodologies
but i already realized this long before you quoted turtle trading
if i am (as i do for a living) scalping dow futures (some of my trades last less than 10 seconds), that is a completely different methodology and obviously the turtle trading rules don't apply
you get more ridiculous as this thread goes on
Well i personally think scaling in or out is much better but hey no one knows where the market is going
Let say i am trading 3 contract and i get 3 point on the es i would scale out 2 car for a 3 point profit and the last i would put a stop loss to brake even point
I mean scaling out is not bad it all depend on the situation and how you have your setup
( no one , no charts , no TA , np price volume , no analytics can say where the market is heading so while we are up we might cash in.
People who dont scale out are willing to take the pain in and out and if they are right and hold the position to the desired price will be rewarded well , but like some one said u can always use the capital to get in another position
I love scaling out
I think most do not realise that B1S2 enters early on most occasions, before there is a possible trend. That is also reflected in his intraday methods, I've observed him buying ES when it is down like 15 points, when I would assume the vast majority of retail is reacting to price and are selling. Most would join the trend at some stage, but due to oscillation are forced physiologically to lock in partial profits and leave the rest on in the hope that price will continue its course. Assuming there are no kids here I do not see why people get so wired about a comment which is true, it's like saying a BMW 5 is not a luxury car when compared to a Bentley, true, but will probably upset a proud owner of the 5 series. I am also a partial scale outer, I do understand though that it is not a perfect method.
__________________
Romik
Quote from whitster:
.
the turtles trading methodology is a TREND following system
trend following systems RELY on (usually) having a lower # of winning vs. losing trades, however, a much higher amount won in winning trades vs. lost on losing trades.
in THAT type of methodology, not scaling can make sense
Quote from romik:
I think most do not realise that B1S2 enters early on most occasions, before there is a possible trend. That is also reflected in his intraday methods, I've observed him buying ES when it is down like 15 points, when I would assume the vast majority of retail is reacting to price and are selling. Most would join the trend at some stage, but due to oscillation are forced physiologically to lock in partial profits and leave the rest on in the hope that price will continue its course. Assuming there are no kids here I do not see why people get so wired about a comment which is true, it's like saying a BMW 5 is not a luxury car when compared to a Bentley, true, but will probably upset a proud owner of the 5 series. I am also a partial scale outer, I do understand though that it is not a perfect method.
Wow... I just came across this thread. I give it to B1S2 for having the courage to provide his reasoning.
I, however, cannot imagine ever knowing enough to figure out the "optimal target." That is a stretch and is pretty subjective since "optimal" can be 10% for one or 1000% for another. In my mind, there are probabilities, averages and standard deviations to all the numbers in the market. However, it makes no sense to not scale out and then leave runners. This is true for any instrument. You can guess but you cannot know.
In my trading, I put on a full boat and scale out as the market gives me clues to further movement in my favor. I then leave a portion on for a runner because I really don't know where it will turn and in what timeframe. At that point, my trade has paid me and if it continues to pay, then so be it. I do this with my intraday trading in futures as well as with my stock fund. This is especially true in such a strong bull market where many trade have hit the "not so likely" 3rd StDev target.
I hope that makes sense. I think the only "inferior behavior" in trading is not pulling the trigger when the setup occurs and not pulling it again when the setup has failed. Everything else is semantics.
There is no reason to cut your position down and have runners unless you believe that the market will reverse. And at that time there should be no runners either! That, by the by, is also one of the major determinants of where stops should be placed. Do not concern yourself with trying to breakeven or have a profit on every trade. Instead, focus should be placed on limiting losses and letting winners run fully. In the end, traders using these types of strategies will be the victors.
the point , which has been endlessly discusssed is that NOBODY knows when the market will reverse, or how long it will run
i trade the dow futures for a living and i scale out
whether or not dood thinks it is "inferior behavior", i know the positive expectancy of my trades, and the smoothness of my equity curve
i know the average amount of adverse travel my setups make against me, which is why i know where to set a logical stop, but scaling out (and moving stops in) works great with my methodology.
it is NOT the only way. it is A way, and given particualr setups and market conditions it is far from inferior
My posts do not suggest that I know the exact tick of the top or bottom (I do suggest that the area can be seen). Rather, the point here of the thread is that whatever your system is to define maturity of the trade, it is better long term to not scale out. Yes, money can be made scaling out and you can be successful, but it is inferior to a system that has you removing all positions at the same time. Please pay more attention to the subject at hand. Thank you.
B1S2, I have seen you many times on your trades let 4,5,6 points of more on es slip away and sometimes even turn into losses. Had you just sold half on those and moved the stop to break even you would have made more money period. You are trying to hit homeruns and sometimes do but what good is a 20 or 30 point gain when you had 5 6 points losses before you got it ?
Quote from volente_00:
B1S2, I have seen you many times on your trades let 4,5,6 points of more on es slip away and sometimes even turn into losses. Had you just sold half on those and moved the stop to break even you would have made more money period. You are trying to hit homeruns and sometimes do but what good is a 20 or 30 point gain when you had 5 6 points losses before you got it ?
Quote from Buy1Sell2:
The homeruns far far outweigh the little 5 and 6 point gains that I give back.
Quote from volente_00:
The math does not agree. Because of the noise in ES the majority of the time is spent moving sideways. Hence you are better off trading the channel than trying to anticipate when it will break out or down.
Quote from volente_00:
The math does not agree. Because of the noise in ES the majority of the time is spent moving sideways. Hence you are better off trading the channel than trying to anticipate when it will break out or down.
Quote from Buy1Sell2:
I agree that on shorter term charts like daily, there is quite a bit of sideways, but on weekly and especially monthly, there is significant trending ability.
Quote from Buy1Sell2:
[...] --I push positions and increase size as you know.:
"I got long a little on this pullback . I am long at 1300.25 with 5 units. My stop is 1256.50. I will look at lower levels to perhaps add positions.
[...]
Scaling out is a play that is employed by a trader who is overextended or needs the profits to bring their account back close to breakeven etc. The big wins that will put the account out of jeopardy are attained when scaling out is not employed. However, the scared money cannot see this.
There is no right way to trade.
you are right (there is no ONE right way)
buy1sell2 has become simply a troll.
There are many strategies that one can trade. However, there is only one right way to trade. Cut losses short, let winners run to full maturity. This is the only correct way to trade regardless of the strategy employed.
Quote from Buy1Sell2:
Scaling out is a play that is employed by a trader who is overextended or needs the profits to bring their account back close to breakeven etc. The big wins that will put the account out of jeopardy are attained when scaling out is not employed. However, the scared money cannot see this.
Quote from Buy1Sell2:
There are many strategies that one can trade. However, there is only one right way to trade. Cut losses short, let winners run to full maturity. This is the only correct way to trade regardless of the strategy employed.
Quote from taowave:
Hi B1S2,
Jumping in late,but what could possibly make you say such a definitive thing???
Quote from Buy1Sell2:
Trades that give a trader pause enough to take off some of the trade, are really trades that should be totally taken off.
Quote from Buy1Sell2:
there is only one right way to trade.
Quote from traderNik:
Flexibility and an ability to perceive that the story you once believed in may not be true are the halllmarks of the great trader.
__________________
In like manner the Muse first of all inpsires men herself and from these inspired persons a chain of other persons is suspended who take......inspiration
The thing to remember is that optimal targets CAN be found . However you will notice that I never use profit targets. I let winners run in full. Over time this is the correct method. A person who is scaling out is missing the opportunity for the homerun that will make the month's trading. It's difficult for people who are making money scaling out to see that they would be making more by not. It's human nature that people are defensive about themselves and I understand that.
http://www.traders.com/Documentatio...Passamonte.html
Quote from Buy1Sell2:
There are many strategies that one can trade. However, there is only one right way to trade. Cut losses short, let winners run to full maturity. This is the only correct way to trade regardless of the strategy employed.
Trading principles need to be the same for traders with large capital and trader with small capital. No getting around the basic truths that should be a given.
Buy1Sell2, reply
Sometimes scaling out is correct.
Some very large and successful traders build up positions that they can not efficiently liquidate with one key stroke so they must scale out.
However, no doubt, there are many, many times when scaling out is not correct.
Quote from Buy1Sell2:
The thing to remember is that optimal targets CAN be found . However you will notice that I never use profit targets. I let winners run in full. Over time this is the correct method. A person who is scaling out is missing the opportunity for the homerun that will make the month's trading. It's difficult for people who are making money scaling out to see that they would be making more by not. It's human nature that people are defensive about themselves and I understand that.
Re: Buy1Sell2, reply
Quote from 777:
Sometimes scaling out is correct.
Re: Re: Buy1Sell2, reply
Quote from traderNik:
Systems are tools and there are many different tasks which tools need to perform. Therefore, there are many different types of tools. To say that you can use 1 tool for every job is... well, to be frank, it's a little naive.
Don't forget the psychological factor of "covering half" - or "closing half" of a position. When you're in a bad position, many are "sure" that if they cover, the stock will reverse (not a good mind set, not matter what). If they sell half, they're happy (or happier at least), that they did so if it goes against them further. If it does turn around, they're happy(happier), that they still have half the position...both result in a better state of mind, IMO....and this can lead to getting into better trades. "Whenever unsure, cover half" - has helped a lot of traders overcome their mental roadblocks over the years.
FWIW,
Don
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
Re: Re: Buy1Sell2, reply
Well said Nick,
I would think that anyone who has spent serious time and effort in learning the art/science of trading should know that the market simply will not allow a "correct" method to exist.
IMHO its a very naive to think that there is A correct way to trade the market.
I am quite sure anyone who puts in the time to backtest/simulate will eventually come to that very same conclusion....
With that said,I would agree with D Bright,and say the emotional aspect of trading dictates what is the "correct" method of trading for any one trader....
Quote from traderNik:
One other thing that B1S2 seems to be unaware of. There are many automated systems that are designed specifically to NOT attempt to find the optimal exit point for every trade. The more you try to exit every trade at the absolute to or bottom, the more risk you expose yourself to. There are systems that are designed to give away a bit of return to gain a reduction in risk. These systems attempt to take the meat out of a move but are not interested in the 'optimal exit point'. They are programmed to scale out when targets are hit. However, targets are clearly not the same thing as 'optimal exit point for every move'.
Systems are tools and there are many different tasks which tools need to perform. Therefore, there are many different types of tools. To say that you can use 1 tool for every job is... well, to be frank, it's a little naive.
Quote from Don Bright:
Don't forget the psychological factor of "covering half" - or "closing half" of a position. When you're in a bad position, many are "sure" that if they cover, the stock will reverse (not a good mind set, not matter what). If they sell half, they're happy (or happier at least), that they did so if it goes against them further. If it does turn around, they're happy(happier), that they still have half the position...both result in a better state of mind, IMO....and this can lead to getting into better trades. "Whenever unsure, cover half" - has helped a lot of traders overcome their mental roadblocks over the years.
FWIW,
Don
Re: Re: Re: Buy1Sell2, reply
Quote from taowave:
With that said,I would agree with D Bright,and say the emotional aspect of trading dictates what is the "correct" method of trading for any one trader....
Re: Re: Re: Buy1Sell2, reply
Quote from taowave:
With that said,I would agree with D Bright,and say the emotional aspect of trading dictates what is the "correct" method of trading for any one trader....
Re: Re: Re: Re: Buy1Sell2, reply
Quote from Buy1Sell2:
Again, this is in favor of my tenet that scared money scales out.
I think it would be a good idea for me to run over a point here that seems to get lost: It's not the amount of the target that is the key--it is allowing your target to be hit once you have done your research. In my case, I don't use targets, but I let he trade run until I see a reversal. In either case, the premise of my thread is that "no matter what your system or target is, the trade should be allowed to run fully". Many have changed the premise in their posts.
Re: Re: Re: Re: Re: Buy1Sell2, reply
Quote from taowave:
As Don implied,its more of a comfort level...
Re: Re: Re: Re: Buy1Sell2, reply
Quote from Buy1Sell2:
Keep in mind, I am saying that whatever STRATEGY you employ, there is only one way to correctly trade and that is to cut losses short and ride winners...
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
I don't see how anyone can argue with the statement that scaling out is inferior, its a mathemtically certainty.
I understand that it feels good to take some profit off the table but that doesnt make it right. At best its an emotional crutch.
There is no good reason to scale out, if you think the position is going further then stay all-in, if you think its about to turn against you, then exit completely.
That being said I do scale out myself, but I appreciate that it is sub-optimal and driven by emotions and not logic.
Mark , in your example , you let the first trade run to it's maturity. Then you put on a second trade with new info and parameters. That is not scaling out. I assume then that you let the second trade run to it's maturity as well? I have no problem with a second trade being put on and run to maturity as long as the first trade is also allowed to run to it's maturity. What I do have issue with is when somone backtests and decides that a 5 pt stop loss and a 15 point profit target hits 60 percent of the time, so that is what they are going to trade, and then pulls the plug at 13 or 14 points.
Re: Re: Re: Re: Re: Buy1Sell2, reply
Call T1 the initial price target and T2 the revised price target based on the new information.
Quote from NihabaAshi:
With that said, what do you do when you reach your profit target?
* Dump it all (no scaling out)
* Dump most of it and let some ride due to the fact that the market condition has changed after entry and there's now new info to support keeping the position open a little longer (scaling out).
Quote from GTS:
I don't see how anyone can argue with the statement that scaling out is inferior, its a mathemtically certainty.
I understand that it feels good to take some profit off the table but that doesnt make it right. At best its an emotional crutch.
There is no good reason to scale out, if you think the position is going further then stay all-in, if you think its about to turn against you, then exit completely.
That being said I do scale out myself, but I appreciate that it is sub-optimal and driven by emotions and not logic.
Quote from Buy1Sell2:
Mark , in your example , you let the first trade run to it's maturity. Then you put on a second trade with new info and parameters. That is not scaling out. I assume then that you let the second trade run to it's maturity as well? I have no problem with a second trade being put on and run to maturity as long as the first trade is also allowed to run to it's maturity. What I do have issue with is when somone backtests and decides that a 5 pt stop loss and a 15 point profit target hits 60 percent of the time, so that is what they are going to trade, and then pulls the plug at 13 or 14 points.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Re: Re: Re: Re: Re: Re: Buy1Sell2, reply
Quote from GTS:
Call T1 the initial price target and T2 the revised price target based on the new information.
Consider the 3 scenarios:
1.Sell all at T1
2.Sell all at T2
3.Sell half at T1 and half at T2
One of the first two will always result in greater profit then the third choice (scaling out)
Your job is to determine based on your trading style if you should be doing 1 or 2, doing 3 just doesnt make sense.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Your second trade was a second trade with different parameters using new info/analysis. I suspect that you let that second trade run to maturity. Initially you allowed the first analysis run to it's target and didn't pull the plug early--Way to be!
Quote from Buy1Sell2:
Your second trade was a second trade with different parameters using new info/analysis. I suspect that you let that second trade run to maturity. Initially you allowed the first analysis run to it's target and didn't pull the plug early--Way to be!
By the way, there are a few old journals here at ET where traders posted their actual P/L statement that showed their trading results.
It was interesting to see the results of those traders that stayed in very profitable trades because the trade hadn't reached its maturity (profit target).
In comparison, to another journal with actual P/L statements where someone scaled out on some occasions to exploit a changed market condition.
Learn when to exploit both and you'll be a better trader because there will be market conditions where one is superior than the other and vice versa.
Mark
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from Buy1Sell2:
Now if you really consider it the same trade and there is a good chance of increased gain, then none should be sold.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Decades of experience ( and simple math) tell me which is better and it is staying in trades until reversal/maturity.
Quote from Buy1Sell2:
Decades of experience ( and simple math) tell me which is better and it is staying in trades until reversal/maturity.
Quote from NihabaAshi:
For example, lets say you get a Long signal in ES at 1438.00 and you have a profit target at anything above 1450.00
However, lets say you get another trade signal to go Short after price hit 1447.00
Reality is this, had you not been Long, you would be opening a Short position around 1447.00
Now you need to convince yourself why you would ignore your Short signal and keep your Long position in hope of riding it to its maturity???
* Do you dump it all because you don't want to ignore your strategy signals?
* Do you scale out most of the position and keep some to see if it reaches its maturity???
* Do you reverse your Long position into a Short position even though you didn't let the Long attempt the 1450.00 price level???
My point, there are different reasons why to scale out and different reasons why not to scale out.
Backtest as many of these different situations to see which is more suitable/profitable even though it may not be sutiable/profitable for someone else that's using a different strategy and/or different trading style.
Simply, learn when to exploit both and you'll be a better trader because there will be market conditions where one is superior than the other and vice versa.
Mark
"Finally, the voice of reason. Nothing in trading is black or white."
I may have said this +/- 50 pages ago here, but bears repeating. There is a very important factor in "emotional comfort" when it comes to real-time profitable trading.
If a trader has good reason to manage trades in less than optimal way BUT still profitable expectancy, that will have better real-time results than trying to do something too uncomfortable to manage.
In other words, holding for the gold in a trade may work out much better thru time on paper, but if a trader can make 1/2 the total gains with partial exits AND is much more comfortable with that style, do it.
I've written enough mechanical systems to know that varying the exit strategy creates many different profitable results. Key word is "profitable". Whatever it takes to make that happen in the real world, so be it.
Once that part is mastered, traders who desire to seek maximum efficiency of trade management can explore & adjust from there. What is most optimal over time on the scale does not always equate to what is most possible for real traders to execute in real time, with real money.
There is a fairly neat part of this discussion and that involves resolution to questions that I had had in my younger years. --I used to sit and look at charts and wonder the following--"Why would I be able to make money when everyone is looking at the same charts"-- I finally decided not to worry about that and just continue with my method. Over time, I have been able to see why I am able to do this. Most people are not able to get trading down to it's bare simplicity which is to cut losses short and ride the winners for as long as they can. When presented with this idea, they are reluctant to go along with it. This is probably due to ideas that you have to be smart or it can't be that simple etc. It is at this juncture that the crux of trading lies. Emotional attachment to trades etc. or to being "right" or greedy, by trying to catch every turn-- Or by being greedy and overextending to where you have to feel an emotional lift and take profits are flaws. My ability to avoid these pitfalls is the reason that I am successful and will continue to be for a very long time. I am one of the few that can reap the full benefits of the markets over a long period of time and get trading right down to it's simplest, which is where it should have always been.
I agree completely with what you wrote here.
Quote from austinp:
I may have said this +/- 50 pages ago here, but bears repeating. There is a very important factor in "emotional comfort" when it comes to real-time profitable trading.
If a trader has good reason to manage trades in less than optimal way BUT still profitable expectancy, that will have better real-time results than trying to do something too uncomfortable to manage.
In other words, holding for the gold in a trade may work out much better thru time on paper, but if a trader can make 1/2 the total gains with partial exits AND is much more comfortable with that style, do it.
I've written enough mechanical systems to know that varying the exit strategy creates many different profitable results. Key word is "profitable". Whatever it takes to make that happen in the real world, so be it.
Quote from austinp:
[B
In other words, holding for the gold in a trade may work out much better thru time on paper, but if a trader can make 1/2 the total gains with partial exits AND is much more comfortable with that style, do it.
[/B]
Quote from Buy1Sell2:
There is a fairly neat part of this discussion and that involves resolution to questions that I had had in my younger years. --I used to sit and look at charts and wonder the following--"Why would I be able to make money when everyone is looking at the same charts"-- I finally decided not to worry about that and just continue with my method. Over time, I have been able to see why I am able to do this. Most people are not able to get trading down to it's bare simplicity which is to cut losses short and ride the winners for as long as they can. When presented with this idea, they are reluctant to go along with it. This is probably due to ideas that you have to be smart or it can't be that simple etc. It is at this juncture that the crux of trading lies. Emotional attachment to trades etc. or to being "right" or greedy, by trying to catch every turn-- Or by being greedy and overextending to where you have to feel an emotional lift and take profits are flaws. My ability to avoid these pitfalls is the reason that I am successful and will continue to be for a very long time. I am one of the few that can reap the full benefits of the markets over a long period of time and get trading right down to it's simplest, which is where it should have always been.
Quote from optionpro007:
Amen.
I let it ride and then scale out.
If I dump all my shares at once, I sometimes move the market and get too much slippage in lower volume stocks.
i start scaling out a few ticks before my desired target simply because it might not get there and because we're all watching the same movie and when it does get there i may want to reverse direction
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
All we can do is make "good entries" and "good exits" based on all the current market conditions (prem/disc, nyob, peer, pair, sector, ecn depth, etc. )...whether you choose to scale out or not is pretty much simply a personal trading decision.
I think "inferior behavior" is a bit much, LOL.
Good topic for my magazine column, be sure to read April TASC.
Don
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
Re: Re: "Scaling out" is inferior behavior
Quote from version77:
"Scaling out is inferior behaviour" -- For you perhaps.
"They took a larger position than they were comfortable with" -- For you perhaps.
"They were wildy extended" -- For you perhaps.
"Gets them back... a more correct size for their account size" -- For you perhaps.
"Gets them back... for their... comfort level"... -- For you perhaps.
"They were scared" -- For you perhaps.
"now have been lucky enough to get some profits" -- For you perhaps.
"Sometimes they let the whole trade run as losses mount" -- For you perhaps.
Your reasons you have stated that scaling out is inferior makes me
think you have noobie ideas floating around in your head...
__________________
Romik
Re: Re: Re: "Scaling out" is inferior behavior
Quote from romik:
Version, if you were an overweight person, would you have an issue with somebody pointing it out to you? etc.
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
Re: Re: Re: "Scaling out" is inferior behavior
Quote from romik:
Version, if you were an overweight person, would you have an issue with somebody pointing it out to you? etc.
Re: Re: Re: Re: "Scaling out" is inferior behavior
At this point, the results of this thread are clear. It has been unequivocally shown that the majority of traders scale out at least some of the time.
There has been no proof whatsoever that scaling out is always sub-optimal. The only proof the OP offers is 'Scaling out is sub-optimal because I said scaling out is sub-optimal'.
The suggestion that one set of rules apply to every trader no matter what his or her style is intuitively unreasonable.
There is no way for any trader to know the 'optimal exit point' for every or even any trade. Again, the only evidence that anyone can find this magical 'optimal exit point' is the assertion of the OP. There has been nothing offered to support this claim other than 'It's true because I say it's true'.
There are many automated systems designed specifically to scale out. In these systems, scaling out is necessary in order to maximize risk/reward ratios. The OP, although possibly a winning trader, has clearly never tried to automate a trading strategy by coding it up. The impossibility of identifying the 'optimal exit point' becomes clear when you are trying to automate a strategy.
Quote from Buy1Sell2:
I view daytrading and trading at the open as inferior behavior as well.
Holy crap! This thread is still alive????
THE MARKET DOESN'T CARE WHAT YOUR INITIAL POSITION IS!!! IF YOU THINK IT'S RATIONAL TO SCALE IN THEN YOU MUST THINK IT'S RATIONAL TO SCALE OUT!!!!
lol!
Quote from Buy1Sell2:
I view daytrading and trading at the open as inferior behavior as well.
LOL, geez, I guess those darn Specialists have been "inferior" at making money for 200 years, and I guess hundreds of my successful traders are "inferior" - the "gurus" (who rarely trade, just write books and spout nonsense) who say "wait for the market to be open a half hour or hour to see the direction" - are boneheads, IMHO. The whole "buy only" "pick new stocks each day" directional trading is "inferior" IMO.
BTW, "daytrading" is just a small part of successful trading plan.
FWIW,
Don
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
Yes daytrading is inferior to swing and position trading --there is no question about. 95% percent of daytraders fail, where the number on swing/position is around 85% failure. Now obviously , there are people who are market makers and specialists, and many of those are profitable, but that is not the vast majorityof traders including myself. Those specialists as a whole would also be more profitable by not daytrading. ie if they were position/swing traders. Obviously, they are there serving a need (liquidity). Remember, I never said that a person could not be profitable using these methods, it's just that it is inferior to other methods. It flies in the face of rule number one which is cut losses short and ride winners. Reading a lot of the opposing views here has reinforced my understanding of why my method is the best when everyone is looking at the same data.
Quote from Buy1Sell2:
..Those specialists as a whole would also be more profitable by not daytrading. ..
There is a lot of emphasis placed on having a system that is right x percent of the time. That is given out and touted as a system that is a winning system. The fact is though that if that system creates small winners and losers of any size, small or large, that system is inferior. Scaling out is one of the main factors that will cause small winners. --When a potential trader does backtesting before beginning a trade or strategy, you will always see where that trader considers that if I would have bought at x and sold at y, the trade would have been profitable by z. Here's the failing in that thinking--most traders start scaling out and taking profits well before the profit target or reversal happens and this ends up leaving money on the table. So, the rigorous backtesting then needs to be thrown out, because it is violated by emotional removal of some of the trade. Very very few traders adhere to rule number 1 in trading/investing--"Cut losses short and let winners ride"
--Remember-- you can be profitable by scaling out, just not as profitable as you would be by riding the winners. ---
Quote from Buy1Sell2:
Yes daytrading is inferior to swing and position trading --there is no question about. 95% percent of daytraders fail, where the number on swing/position is around 85% failure. Now obviously , there are people who are market makers and specialists, and many of those are profitable, but that is not the vast majorityof traders including myself. Those specialists as a whole would also be more profitable by not daytrading. ie if they were position/swing traders. Obviously, they are there serving a need (liquidity). Remember, I never said that a person could not be profitable using these methods, it's just that it is inferior to other methods. It flies in the face of rule number one which is cut losses short and ride winners. Reading a lot of the opposing views here has reinforced my understanding of why my method is the best when everyone is looking at the same data.
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
Most folks in the thread miss the simple point that I am making. This is probably due to hair on the back on the neck pricking when they read the word inferior. I am not maintaining that the people who scale out are inferior people. Quite the contrary, they are probably very right upstanding individuals. What I am saying is that the practice of scaling out is inferior to not scaling out. That is all. There are many strategies and systems that can be employed, however there is only one correct way to trade and that is cutting losses short and riding winners. --
http://www.rightline.net/education/...strategies.html
I recently entered a trade by selling in front of a very large offer on the yen for the third time today.
I have no idea how far the trade will go in my favor. I have scaled out multiple times and gotten back in. I have banked nice profits and am now short at a slightly better price than I had on my first short.
You are now proven to be wrong with real yen/ dollars.
Quote from Buy1Sell2:
...What I am saying is that the practice of scaling out is inferior to not scaling out. That is all. There are many strategies and systems that can be employed, however there is only one correct way to trade and that is cutting losses short and riding winners. --
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from Buy1Sell2:
http://www.rightline.net/education/...strategies.html
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from NihabaAshi:
However, the articale at the above link is talking about a trader that scales out prior to a profit target (my interpretation of the article).
This is the trader I believe you refer to as having fear and I strongly agree with such.
Mark, in your example of trader A and trader B, you need to allow my trader A to also identify the future potential of the market and keep the full position on instead of a smaller one. The point I am making is that over the long haul, the trader that lets the full position go to maturity will be more profitable necessarily.
Quote from Buy1Sell2:
Mark, in your example of trader A and trader B, you need to allow my trader A to also identify the future potential of the market ...the trader that lets the full position go to maturity
One common adage...that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.
William Eckhardt
The way to build [superior] long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.
Stanley Druckenmiller
Quote from Buy1Sell2:
Mark, in your example of trader A and trader B, you need to allow my trader A to also identify the future potential of the market and keep the full position on instead of a smaller one. The point I am making is that over the long haul, the trader that lets the full position go to maturity will be more profitable necessarily.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from Don Bright:
MOC's (with the Specialist, not against him
Quote from Buy1Sell2:
One common adage...that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.
William Eckhardt
The way to build [superior] long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.
Stanley Druckenmiller
Quote from Buy1Sell2:
I view daytrading and trading at the open as inferior behavior as well.
Mark, we cannot presume to know what is in trader A's head. We can only know that both trader A and B have the same opportunity to reevaluate the market and trader A will profit more by keeping his full position on over the long haul as compared to trader B going with a reduced position. My tenet is that if the market analysis indicates that there is a good possibility of market upside(or downside if short), then it only makes sense to let the full position run. Why pull positions if you think the market will continue? --Just doesn't make sense unless you are "afraid" of a market reversal ie overextended.
Quote from NihabaAshi:
Yes I agree.
However, the typical Trader A I've met do not do such type of profit target readjustment...
The typical Trader A will stilck to the original profit target and exit all when the profit target is reached.
Of all the Trader A types I know...very few of them will change the game plan after entry in which they stay in the trade after the profit target is reached due to improved market conditions.
Mark
As a lot of folks here know, I don't use profit targets--I use trailing stops. But if you do use targets, then stick to them.
Quote from Buy1Sell2:
As a lot of folks here know, I don't use profit targets--I use trailing stops. But if you do use targets, then stick to them.
This sort of dogmatic inane argument will be defended forever by paper traders and dreamers.
Quote from Buy1Sell2:
Mark, we cannot presume to know what is in trader A's head...
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
New, if you are using profit targets and the probability is not high , then the wrong profit target is being used and should be lowered. Your backtesting should give you the correct profit target that hits with good probabiity. At that point, you don't scale out, you just let it run to the target. After all, you have tested and found that the target is your optimal target in terms of percentage-- If the target that hits 70 percent of the time is 6 points, then don't pull the plug at 5 points. That's all that is being said here.
Quote from NihabaAshi:
I can presume to know what a typical Trader A is like in real money trading along with the fact I've personally traded with the Trader A types and the Trader B types.
However, I do not presume to know what type of trader you are.
Yet, in theory or backtesting...I'm not surprise to hear that Trader A outperforms Trader B.
Mark
[QUOTE]Quote from NihabaAshi:
[B]
However, I do not presume to know what type of trader you are.
QUOTE]
PAPER!!!!!
Quote from Buy1Sell2:
New, if you are using profit targets and the probability is not high , then the wrong profit target is being used and should be lowered. Your backtesting should give you the correct profit target that hits with good probabiity. At that point, you don't scale out, you just let it run to the target. After all, you have tested and found that the target is your optimal target in terms of percentage-- If the target that hits 70 percent of the time is 6 points, then don't pull the plug at 5 points. That's all that is being said here.
Quote from thenewguy:
That's a matter of preference. I think inadvertantly there are a lot of people here arguing against trading like this. Mathematically speaking, it doesn't matter whether your probabilities are high as long as your EV is high.
TNG
Quote from Buy1Sell2:
The main thing is that scaling out is an effort to make every trade a winner by reducing exposure as the trade moves in your direction. With backtesting we come up with a probability expectation , be it 30 percent or 70 percent, yet when the trade is on we try to make it 100 percent instead of relying on our homework. It's best to just take some losses and let the others run/work.
Quote from Buy1Sell2:
Mark, your presumption of what is in his head is not germane here though because we are discussing math and not a trader's abilities except to say that scaling out as a practice is an inferior behavior. Your discussion of trader A's habits may be a good one and subject of another thread, but it does not have it's place here in discussing that both traders had the same opportunity to engage in the same math.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from Buy1Sell2:
The main thing is that scaling out is an effort to make every trade a winner by reducing exposure as the trade moves in your direction. With backtesting we come up with a probability expectation , be it 30 percent or 70 percent, yet when the trade is on we try to make it 100 percent instead of relying on our homework. It's best to just take some losses and let the others run/work.
Quote from thenewguy:
The profitability of scaling out solely depends on your probability of your profit targets AND the payout of those targets. - TNG
Quote from thenewguy:
Now, if you were to argue that a system with a %30 probability of hitting it's targets is silly, then you have a case for not scaling out. But simply to say it is "inferior" to scale out is mathematically wrong.
- TNG
Quote from Buy1Sell2:
A system with only a 30 percent win ratio will either win more or lose less by not scaling out. The percentage of wins is not relevant to whether it's better to scale out or not. The math works the same irrespective of that.
Quote from thenewguy:
That is incorrect, and you don't understand EV.
- TNG
Quote from ForrestGump:
Very nicely said.
This is truly the heart of the matter. As Eckhardt points out, we all have a strong tendency to focus too much on the current trade we are in, and, anything that we do to keep the current trade from turning into a loss almost invariably acts to reduce the overall profitability of our system.
Cheers.
Quote from Buy1Sell2:
Not scaling out will outperform scaling out at any win percentage system except zero. At that level all trades will be stopped at the initial stop loss and the behaviors will have equal results.
Quote from thenewguy:
Funny, I posted mathematical proofs that this is incorrect, and you keep stating it like it's a fact.
Oh well, hard to debate when only one side is bringing facts to the table.
TNG
Quote from Buy1Sell2:
When you post mathematical proofs, please use the same parameters for both sides ie win percentage moving stops etc. --because both types of trading have access to that. Otherwise, you are comparing apples to oranges. When a proof is posted that has that involved, I will then analyze it.
Quote from Buy1Sell2:
New, if you are using profit targets and the probability is not high , then the wrong profit target is being used and should be lowered. Your backtesting should give you the correct profit target that hits with good probabiity. At that point, you don't scale out, you just let it run to the target. After all, you have tested and found that the target is your optimal target in terms of percentage-- If the target that hits 70 percent of the time is 6 points, then don't pull the plug at 5 points. That's all that is being said here.
Analysis from your example is as follows:
Scaling out 100 trades 2pt loss target(It can be any amount)
90 winners times 10 equals 900 points (1 contract)
1 winner times 11 equals 11 pts (1contract)
109 losers times 2 equals -218 pts (1 contract)
Total 693 pts
No scale out
90 winners times 10 equals 1800 points (2 contracts all out)
10 losers times 2 equals -40 pts (2 contracts all out)
Total 1760 pts
The example you have provided in your previous post concerning probability is simply a proof of why 10 pts is a better target than 11 pts. That is all. It has nothing to do with scaling out or not scaling out. A person would choose the 90 percent target as the place to exit all positions. As you can see from the example provided, "All out" is much more profitable.
Quote from thenewguy:
B1S2 I think you are forgetting to include probabilities in your calculations. Take a look at this:
scaling
contracts odds payout ev
1 0.9 10 9 %90 going to 10
1 0.01 11 0.11 %1 going to 11
9.11
all out
contracts odds payout ev
0 0.9 10 0 %90 going to 10
4 0.01 11 0.44 %1 going to 11
0.44
This is scaling out one contract at 10, letting the other run to 11. The second is letting the entire trade run to 11. I've used a %1 chance as an extreme measure to show the results. There is a point where your ev is higher letting the whole trade run, but it's a function of probabililty x payout.
TNG
EDIT: formatting sucks, looked good when i typed it in though...
Thanks Jimmy Jam very much for the kind words here.
Quote from JimmyJam:
A sincere thanks for the thread B1S2, you've helped me resolve my own questions about scaling-in/out with the input of a lot of good traders.
The strength and conviction of the viewpoints argued shows that this is a key part of any successful trading methodology, one which is just as important as when to enter a position.
For what it's worth (to me at least) I'm with you 100%, taking profits too early turns a great system into being merely good, and makes a good system just barely so. Anything else is going to end up below Zero Line threshold for profitability
Regards and Good Trading,
Jimmy Jam
An example of a "superior strategy" would involve scaling out of holdings as their positive expectancies diminish, replacing them with new holdings having higher positive expectancies. Such an approach would theoretically provide greater returns while dampening volatility through increased diversification.
Quote from Buy1Sell2:
The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially...
You can't prove a totality by proving one subset. Check your Venn diagram again.
I need to remember this sound bit verbatim as it will save a lot of argument.
Quote from jem:
You can't prove a totality by proving one subset. Check your Venn diagram again.
This is a simple math premise concerning one trade. Do not try and confuse the issue. If we were to examine what you are mentioning here, then it would be argued that if the expectancy is better elsewhere, then the whole trade should be taken off at the same time and transferred to the higher expectancy trade. Why would some of the trade be left on? --Doesn't make sense--sorry. Many people are making the case for me and don't realize it.
Quote from BlindLemonBoosh:
An example of a "superior strategy" would involve scaling out of holdings as their positive expectancies diminish, replacing them with new holdings having higher positive expectancies. Such an approach would theoretically provide greater returns while dampening volatility through increased diversification.
Why are the OTHERS scaling out? Risk management? Quantitative re-deployment of assets? You can't prove a totality by proving one subset. Check your Venn diagram again. Thanks.
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior.
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
then the whole trade should be taken off at the same time and transferred to the higher expectancy trade.
Scaling out is an averaging process. If the markets are in a state where it's fractal dimension is (well "below") less than .5 (reverting to the mean), then it may make sense to scale out and buy back at support. If the fractal dimension of the market is (well "above") > .5 (trending), then scaling out is likely to cause leaving lots of money on the table.
This can all be tied to expectancy because expectancy is a function of underlying volatility. For example, if you look at the way that option models use trees to value an option, you can see that they assume Geometric Brownian motion of the underlying, and the expectancy at each node in the tree comes from the probability of an up move or a down move. The model is doing an averaging process at each node. I haven't thought it through, but the logic to scale out or not is probably similar to that used in option model trees.
Therefore, imo the answer is, you gotta know what type of market you are in (i.e. volatility), and then adjust accordingly how you take profits because expectancy is different in each type of market. This is hugely complicated because the market (from a game theoretic point of view) is playing mixed strategies in all time frames.
Imo, scaling out in some form (note that this is more complicated than it seems at first) is critical in todays markets. Look at ES, it looks like a chart of ZN for crying out loud!
nitro
__________________
"You have to fix your roof when it's sunny outside" - JFK
No Nitro--The entire position should be closed out and reentered on a pullback, not just a portion of it. Common sense.
The prudent is already diversified before entering into the trade, therefore this makes your argument irrelevant. You are attempting to move the discussion into a long back and forth on how a person should manage their entire portfolio. I am discussing how to manage each individual trade.
Quote from BlindLemonBoosh:
Incorrect. You aren't risk-adjusting your results. Diversification smooths the equity curve in the scenario I outlined, providing a superior risk/reward profile. I would have to trade with leverage to bring our risk levels to equivalence (goosing returns in the process). You are ignoring this "apples to apples" adjustment.
Re: Re: "Scaling out" is inferior behavior
Scaling out violates rule number 1, which is to let winners run and cut losses short. So, yes an absolute pronouncement on this subject is fully warranted and well thought out.
Quote from Thunderdog:
Really? And I thought that making absolute pronouncements in an environment of uncertainty was inferior behavior. How foolish of me.
Quote from Buy1Sell2:
No Nitro--The entire position should be closed out and reentered on a pullback, not just a portion of it. Common sense.
__________________
"You have to fix your roof when it's sunny outside" - JFK
Quote from nitro:
I don't know about that. I think this is a really hard question that may have a mathematically correct answer, but even if there is no closed form solution, experienced pros find the right way, or a darn good approximation to it.
If a successful trader is telling you what they do, it is worth listening to that recepie because they have probably intuitively worked out the mathematics without knowing it explicitly as that.
Think of a robot trying to learn how to catch a ball thrown to it. We have Newtons law of gravitation, we have supercomputers, etc. And yet, get a kid out on a field a few times, throw a ball on any arc to him and he gets it without much thougth. Robots are terrible at this sort of thing...
nitro
My 2 cents.
There is no way to predict how far a "profit will run" or how far a loss will go, no crystal balls yet. So, with that in mind, we don't know if we will be able to "buy on pullbacks" after selling everything. And, there is no way to determine the absolute P&L from scaling out.
Bottom line is all that really counts, interesting discussion however.
Don
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
Quote from nitro:
I don't know about that. I think this is a really hard question that may have a mathematically correct answer, but even if there is no closed form solution, experienced pros find the right way, or a darn good approximation to it.
If a successful trader is telling you what they do, it is worth listening to that recepie because they have probably intuitively worked out the mathematics without knowing it explicitly as that...
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
In my prior post when I use words like scale all out.
I meant to say exit all out without scaling out of a position via increments.
Also, it would be interesting to poll the Trader P/L Statement 2007 thread to see the profit levels of those that scale out versus those that exit all at once.
http://www.elitetrader.com/vb/showt...?threadid=83837
Mark
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from Don Bright:
My 2 cents.
There is no way to predict how far a "profit will run" or how far a loss will go, no crystal balls yet. So, with that in mind, we don't know if we will be able to "buy on pullbacks" after selling everything. And, there is no way to determine the absolute P&L from scaling out.
Bottom line is all that really counts, interesting discussion however.
Don
__________________
I'm handing you no blarney
Quote from NihabaAshi:
In my prior post when I use words like scale all out.
I meant to say exit all out without scaling out of a position via increments.
Also, it would be interesting to poll the Trader P/L Statement 2007 thread to see the profit levels of those that scale out versus those that exit all at once.
http://www.elitetrader.com/vb/showt...?threadid=83837
Mark
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
who cares if one trades sub-optimally.
If you make big money and feel good about it then everything is all right - alternatively if you do not feel right about it then give more to charity.
Seriously, and as indicated several times in this thread, it is all about odds and how you feel about a particular position. Odds are constantly changing with new information arriving - therefore your position must adjust (up or down).
Some information may seemingly not be related to your position but still - if you feel like you should take some chips off the table - subconsciousness (or call it gut feeling) may persuade you to rebalance. At the end of the day the subconsciousness is what you nurtured in years of your trading - and is called experience. If you have more of it you have better chances to succeed because you can minimize many trading devils like FEAR, Kahneman-Tversky, impatience etc without knowing the ultimate optimal trading strategy.
__________________
*****************
love small losses
I don't agree with this attitude at all. When you can get a mathematically correct computation that does the right thing, you want to use it, even when you are trading discretionary. But the point really hits home when you are trying to implement an automated trading strategy, then it becomes critical that these questions be asked and that what you are doing is mathematically sound, or at least trading sound.
nitro
Quote from dhpar:
who cares if one trades sub-optimally.
If you make big money and feel good about it then everything is all right - alternatively if you do not feel right about it then give more to charity.
Seriously, and as indicated several times in this thread, it is all about odds and how you feel about a particular position. Odds are constantly changing with new information arriving - therefore your position must adjust (up or down).
Some information may seemingly not be related to your position but still - if you feel like you should take some chips off the table - subconsciousness (or call it gut feeling) may persuade you to rebalance. At the end of the day the subconsciousness is what you nurtured in years of your trading - and is called experience. If you have more of it you have better chances to succeed because you can minimize many trading devils like FEAR, Kahneman-Tversky, impatience etc without knowing the ultimate optimal trading strategy.
__________________
"You have to fix your roof when it's sunny outside" - JFK
Quote from nitro:
I don't agree with this attitude at all. When you can get a mathematically correct computation that does the right thing, you want to use it, even when you are trading discretionary. But the point really hits home when you are trying to implement an automated trading strategy, then it becomes critical that these questions be asked and that what you are doing is mathematically sound, or at least trading sound.
nitro
__________________
*****************
love small losses
Quote from Buy1Sell2:
The prudent is already diversified before entering into the trade, therefore this makes your argument irrelevant. You are attempting to move the discussion into a long back and forth on how a person should manage their entire portfolio. I am discussing how to manage each individual trade.
Haven't read every post here but the sense I get is that there is agreement that scaling out is probably a mistake for an amateur. This is interesting since it is the opposite of what many beginning trading instructors teach.
There is another activity which I think is highly questionable but widely recommended - paper trading.
Quote from BlindLemonBoosh:
Actually, that's not the case. The question here is whether it makes sense to hold 2 positions having positive expectancy vs. holding one. My point is: two positions will often win on a risk adjusted basis, particularly in situations where correlation is low, EVEN IF ONE EXPECTANCY IS LOWER THAN THE OTHER. Scaling out of the first position to get to this 2 position state is legitimate and prudent trading.
You failed to take risk into account when considering your "thesis".
Many know that I am in several markets at once and have the majority of my funds elsewhere (not in trading account). Thus, I am a prudent trader who is concerned and plans for risk.
Here is a real life example of my no scale out philosophy:
I have a particular signal in the Euro FX 60 minute chart that nets 60 pips 61% of the time and nets me 82 pips 43 % of the time .
2 contracts using 30 pip stop --no scale out 100 trades
61 winners 60 X 2 X 61 equals 7320 pips
39 losers 30 X 2 X 39 equals -2340 pips Net 4980 pips
43 winners 82 X 2 X 43 equals 7052 pips
57 losers 30 X 2 X 57 equals -3420 pips Net 3632 pips
Ok, now we have determined that we can make money with both , but the 60 pip is more optimal than the 82 pip play. Now, lets look at scaling out versus not scaling out:
We'll pull one contract at 40 pips and let the second run to 60 pips.
Scaling out:
61 winners 1 contract 40 pips equals 2440 pips
61 winners 1 contract 60 pips equals 3660 pips
39 losers 2 contracts 30 pips equals -2340 pips Net 3760 pips
No scale out:
61 winners 60 X 2 X 61 equals 7320 pips
39 losers 30 X 2 X 39 equals -2340 pips Net 4980 pips
By the way, the expectancy for 40 pips is around 65%
Much better by not scaling out . Can you make money scaling out? ---Yes Is it sub optimal/inferior over the long run? --Yes
Quote from Don Bright:
My 2 cents.
There is no way to predict how far a "profit will run" or how far a loss will go, no crystal balls yet. So, with that in mind, we don't know if we will be able to "buy on pullbacks" after selling everything. And, there is no way to determine the absolute P&L from scaling out.
Bottom line is all that really counts, interesting discussion however.
Don
Quote from Buy1Sell2:
It is however possible to obtain a probability of how far moves will go over a large sample based upon past history .
__________________
I'm handing you no blarney
Quote from Thunderdog:
I love that reference. "Past history." As compared to...future history?
I would mention here that since the initiation of this thread, I have decided that I was wrong to scale into trades. That is an inferior behavior as well. I have been making money with it for over a quarter of a century, but it is sub optimal and I will not be doing it anymore. Full position should be taken initially and full position should be exited. --The problem with the scale in strategy lies in the fact that there are times when the markets goes in your direction right away and you have a small position on. That's ok for 401 k'ers but not taders.
Quote from Buy1Sell2:
I would mention here that since the initiation of this thread, I have decided that I was wrong to scale into trades. That is an inferior behavior as well. I have been making money with it for over a quarter of a century, but it is sub optimal and I will not be doing it anymore. Full position should be taken initially and full position should be exited. --The problem with the scale in strategy lies in the fact that there are times when the markets goes in your direction right away and you have a small position on. That's ok for 401 k'ers but not taders.
Quote from Buy1Sell2:
Past history...
__________________
"You have to fix your roof when it's sunny outside" - JFK
Quote from Buy1Sell2:
Again, this is going into a lot more than what I am discussing here. I am discussing whether scaling out is inferior in the context of one instrument, one time frame, one type of signal. I am saying that if you have a signal on a 10 minute chart in ES and that signal runs to a 6 point profit target x percentage of the time, then let it run to that 6 point target, don't pull some of it off at 4 points.
Quote from BlindLemonBoosh:
All well and good, but some people don't trade like that. Let take Mr. Quant as a hypothetical example: He has built a model that assesses the expectancy of various indices on a daily basis. Two trading days ago, to his great delight, the model assessed the S&P 500 to have a positive expectancy of +1.44% for the coming week, with an expected winning percentage of 68.7%, for the coming week. So, he placed a leveraged bullish bet with 200% of the funds allocated to that market. Today, toward the end of trading, his calculated gain of 3.4% on his position gave him a warm happy feeling inside. Checking the model, he saw an expected winning percentage of 54.1% and a one week positive expectancy of +0.37%.
What should Mr. Quant do?
In order to receive any partial credit, you must show your work.
Which would you rather be ? A 75% trader who hits 2-4 points consistently multiple times intraday? Or a 30% swing trader who nets 20-30 points but must wait long periods for each trade to mature ? If you have a profit target there is nothing wrong with waiting for it to get hit but it really depends on your current win rate. I have noticed in your ES trades you often take quite a bit of heat, such as the past one that went 40 points against you before reversing. It is obvious that this ES trading makes up such a small % of your portfolio that it allows you to use such wide stops.
There are trends ... there aren't
Scaling in works ... it doesn't
Scaling out works ... it doesn't
We predict .. we don't
Is 5 months and 120 pages on one of these arguments evidence of obsession or boredom?
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The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
__________________
------------------------
The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
I have just tuned into this board and think its really good. I am intrigued by this debate.
I think b1s1 has a point...but it also depends on how your system is quantified.
For example...I feel that my exit rules get me out quite near the top of a trend.
So if someone has an exit strategy that gets you out usually near the top of the trend then it makes sense to not scale out.
On the other hand if someone has an exit plan that gets them out half way up the trend then i think its time to use scaling out and leave some contracts on the table and then relax the exit rules.
however I would stress that this needs to be quantified.
for example in backtesting I make a note of all my entry price and exit price according to my systems rules. I then measure the percentage increase or decrease in price between the entry and exit. I do this for a security over as many years as possible, some currencies I will do this for nearly 20 years of data.
Now if I add up all these percentages between my entry and exit and take an average then I know what the average move is between my entry and exit.
i then create a frequency table in excel.
1-3% 13
4-6% 14
7-10% 13
10-15% 10
15-20% 9
20-30% 7
This only an example. I also mark the peak of the trend or low point in a down trend and I calculate the percentage between my exit and the actual peak of the trend. So if I have an exit strategy that 4 times out of 10 gets me out within 10% of the peak then it doesnt make sense to scale out. It all depends on how good your exit strategy.
I think another poster said that you will know the answer to scale out ir not with study of your system.
if you quantify using stats about your system exits within 30% or 40% from the peak of the trend then it would be a good idea to look at your exit strategy and try to change it to catch more of the move.
As I said it all depends. mine is still a work in progress but if my system gets me out 1 out of 10 times within 10% of the peak then it would be wise to scale out some at an earlier point.
However my system gets me out with 10% of the peak of the trend 3 or 4 times out of 10 then its better not to scale out.
Scaling in...? Hmm,still not sure. again I think it depends on your system.
Looking at your trade success rate should offer some clues...
if you have a success rate of less than 50% winners to losers then scaling in would bea good thing. If your success is more than 50% but you only catch small parts of the move then I think its better to get fully in early.
If your system catches agreat portion of the move but has a rate of success less than 50 percent then I think its better to scale in.
Foe example winning only 4 out of 10 times means that you have 6 losers.
Assume we risk 2%in total in any one trade
Lets say that we go all the way in from the beginning. That means we lose 12% of our bank at some point in those 10 trades.
However if we scale in starting at 0.5% and the trade turns into a loser we have only lost 0.5%. This could be a saving of say
6*1.5%=9%
A 9% saving of our bank in every 10 trades.
But what if these other 4 times we win that we get 80 to 90% of the move?
Or on the other hand we get only 30-70% of the move?
these things have to weighted and tested.
is our exit strategy off setting the 9% saving we made by scaling in?Not really if we dont catch a good portion of the move...
I think if our exit gets us out at a high point then it is better to scale in because the part of the move we lose at the start will be made up with a good exit. My heads starting to fry must go...
Quote from Buy1Sell2:
In any event , your exercise is geared toward finding an optimal target
Quote from kiwi_trader:
Is 5 months and 120 pages on one of these arguments evidence of obsession or boredom?
Quote from lescor:
Scaling out is a valid way to manage risk, take advantage of statistical odds of certain price moves and capture price spikes you can't react to fast enough. It has nothing to do with being 'scared' or 'wildly over extended'.
You come across as closed-minded and generally clueless when you make blanket statements of certainty regarding the markets.
Quote from version77:
Since the word "inferior" is used in the thread title, I assume that
someone with a superiority complex wrote it and is trying his best
to remain superior with his hypothesis...
The only "absolut-ism "of the market is there is NO absolutism which puts a serious dent in the OP's opening statement.....
I would futher counter the OP's logic by asking if he blindly reverses his position upon liquidation.Considering that he is 100% sure that it is optimal to liquidate 100% upon a target/signal,it would imply that one should reverse direction at that point.
Quote from BlindLemonBoosh:
Er, no. You should probably try reading the "Mr. Quant" post again. There is no such thing as a "target" in his trading methodology. In fact, he had achieved the original expectancy (and then some) and still had a forward-looking positive expectancy remaining.
Quote from volente_00:
Which would you rather be ? A 75% trader who hits 2-4 points consistently multiple times intraday? Or a 30% swing trader who nets 20-30 points but must wait long periods for each trade to mature ? If you have a profit target there is nothing wrong with waiting for it to get hit but it really depends on your current win rate. I have noticed in your ES trades you often take quite a bit of heat, such as the past one that went 40 points against you before reversing. It is obvious that this ES trading makes up such a small % of your portfolio that it allows you to use such wide stops.
Quote from volente_00:
It is obvious that this ES trading makes up such a small % of your portfolio that it allows you to use such wide stops.
Quote from kiwi_trader:
There are trends ... there aren't
Scaling in works ... it doesn't
Scaling out works ... it doesn't
We predict .. we don't
Quote from fearless9:
If and when the author of this thread ever begins trading with real money, this thread will cease to exist.
Quote from version77:
Since the word "inferior" is used in the thread title, I assume that
someone with a superiority complex wrote it and is trying his best
to remain superior with his hypothesis...
Quote from taowave:
The only "absolut-ism "of the market is there is NO absolutism which puts a serious dent in the OP's opening statement.....
Quote from taowave:
I would futher counter the OP's logic by asking if he blindly reverses his position upon liquidation.Considering that he is 100% sure that it is optimal to liquidate 100% upon a target/signal,it would imply that one should reverse direction at that point.
Quote from Buy1Sell2:
otherwise why take any off?
Quote from Buy1Sell2:
I didn't used to think so, but now I do. You should always be in the market and the only time you would take your money off the table is when you think there is a reversal--otherwise why take any off?
Quote from version77:
When I was a kid my grandma always told me if someone comes
around passing out cookies to take some before they are all gone...
Quote from taowave:
Not sure what you mean by "take your money off the table when you think there is a reversal"...
That certainly is not "always be in the market"......
By your logic,if you feel one should take 100% of a position off at a specific target or signal,then unless you reverse your logic is inherently flawed,or should i say not optimal...
Quote from Buy1Sell2:
It was just a poor choice of words. By taking money off the table, I meant that you should take all profits off the table and reverse the position. You always should exit the full position.
Quote from Buy1Sell2:
You have just stated that Mr Quant is not using targets therefore the answer is very simple since it is how I do the bulk of my trading. -- He stays in the trade until the previous reaction low stops him out.
Quote from BlindLemonBoosh:
Er, no. You should probably try reading the "Mr. Quant" post again. There is no such thing as a "target" in his trading methodology.
Quote from Buy1Sell2:
What happens to derail most otherwise sound thinkers is that they try and make trading more complicated than it is. It is not--
Quote from Buy1Sell2:
I don't need any extra detail in this example.
Quote from Buy1Sell2:
The level of positive expectancy is irrelevant to a trader who is not using targets.
Quote from BlindLemonBoosh:
It is quite relevant to the sizing of the trade -
Quote from BlindLemonBoosh:
Your mind has been made up since the original post.
Quote from Buy1Sell2:
Correct. --And a lot earlier than the original post I would add. I would also reiterate that since the beginning of the thread , I have changed my position on scaling in as well and now believe it to be folly over the long haul tool.
If scaling out is inferior, then your method of scaling in is inferior because if you have the confidence to know 100% when to sell completely then surely you have the same about when to get in. By scaling in you are hurting your profits by adding at a higher price on a long or a lower price on a short.
Quote from taowave:
Lets make this very simple....
Pick a set of rules,post them,and lets see if yout theory of scaling holds up.I for one do not believe you have backtested and performed walked foward analysis.
This is a very simple thing to test.....
Quote from volente_00:
If scaling out is inferior, then your method of scaling in is inferior because if you have the confidence to know 100% when to sell completely then surely you have the same about when to get in. By scaling in you are hurting your profits by adding at a higher price on a long or a lower price on a short.
Quote from Buy1Sell2:
It doesn't matter what the rules are. The system that does not scale out will always outperform the one that does. This is the point that I am making--keep it simple.
Quote from volente_00:
Not if your system has smaller targets.
Quote from volente_00:
Not if your system has smaller targets.
It is the probability.
The winning % will not stay constant.
If you are a 30% winner using 10 point targets and 50% using 6 point targets then you will be better off selling half at 6 points and going to break even. If you don't imply this on the 10 point target then you will either make 0 or -10 or 10 points on the trade with 70% of the time being 0 or -10.
Quote from Buy1Sell2:
I agree.
Quote from volente_00:
It is the probability.
The winning % will not stay constant.
If you are a 30% winner using 10 point targets and 50% using 6 point targets then you will be better off selling half at 6 points and going to break even. If you don't imply this on the 10 point target then you will either make 0 or -10 or 10 points on the trade with 70% of the time being 0 or -10.
Quote from volente_00:
so the why do you advise scaling in but not scaling out ?
Quote from Buy1Sell2:
It doesn't matter what the rules are. The system that does not scale out will always outperform the one that does. This is the point that I am making--keep it simple.
Quote from taowave:
Ok,so its clear you have never backtested and you are entitled to your opinion,but without somesort of analysis it is just your gu talking..
I agree with this assertion, but probably not for the same reason you do.
If you are using game theoretic computations where you put a trade on, and you have targets and risk as your parameters, what you are saying is correct. This is especially true in the context that these are the parameters you tested with, and therefore this is the probability distribution that you are using to get your expectancy.
However, that does not mean that there aren't superior forms of trading. For example, if your algorithm allowed you to dynamically run [game] theoretical computations on each tick, now everything changes.
A similar problem is the following. Imagine that you had three choices to limit risk on a trade you just entered: create a stop loss, delta-hedge a position, or dynamically delta-hedge a position. You can show mathematically that most of the time, the dynamic delta-hedge is superior to either stop loss or the static delta-hedge. But you are only able to do a dynamic delta-hedge if you had the equations that showed you how to do it at each delta-time step.
What I am trying to say is, you are doing good thinking, but be aware that the greatest amount of sophisticaion (as measured by the ratio of risk/reward) is almost always to be able to update your strategy dynamically, because the market is doing the same thing. Setting targets and taking out a position all at once is almost certainly a special case of scaling out as the dynamics of the markets evolve.
Notice that this discussion comes down to knowledge of the geometry of the manifold, as opposed to the topology of the manifold. Only God can see the topology of a manifold at once (the forrest), the rest of us traders have to deal with little pertubations from local coordinates and at infinitesimal time step dx from now, the trees. That means our decisions have to be updated as we ride the manifold locally. If it weren't for the B/A spread and transaction costs, it would not matter that our strategy is being run on local properties of the manifold. We would do as well as someone that could see the forrest.
For these reasons, IMO, trading is a game for traders that can adjust their positions in "realtime" with close to zero costs. The rest of us are gambling with "stop losses", albeit with maybe a tiny statistical edge.
nitro
Quote from Buy1Sell2:
... but once that system is defined, it does not make sense to scale out over the long haul.
__________________
"You have to fix your roof when it's sunny outside" - JFK
Quote from taowave:
You would be better served by saying scaling out may outperform,but on average it offers no advantage to full liquidation...
Quote from nitro:
is almost always to be able to update your strategy dynamically.
Quote from Buy1Sell2:
Each time a trade is updated dynamically if that is what you are doing, then those are all individual new trades ie when you recalculate and determine a new expectancy, then that is actually a new trade with new parameters and should be allowed to run fully.
__________________
"You have to fix your roof when it's sunny outside" - JFK
You guys are talking way over my simple head. The only thing I am fairly certain of is that when you are dealing with uncertainty (i.e., market price movement), all-or-nothing behavior is unnecessarily risky and, therefore, probably suboptimal in the longer run. I imagine it always looks better on historical data.
__________________
I'm handing you no blarney
Quote from nitro:
True. A great deal of the confusion is definitional.
nitro
Quote from Thunderdog:
all-or-nothing behavior is unnecessarily risky
Quote from Buy1Sell2:
Only when overextended ie "scared money" .
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
No. Actually it is on average(long haul) that it does outperform. --Math principle is the same no matter what the rules are.
Quote from taowave:
...you believe in always being in the market,full liquidation and reversing direction upon exits....
__________________
"You have to fix your roof when it's sunny outside" - JFK
Quote from nitro:
I wonder if that is how he chose his alias, Buy1Sell2?
nitro
Quote from Buy1Sell2:
Each time a trade is updated dynamically if that is what you are doing, then those are all individual new trades ie when you recalculate and determine a new expectancy, then that is actually a new trade with new parameters and should be allowed to run fully.
Quote from BlindLemonBoosh:
An equivalent way of considering this trade is as a sequence of discrete trades, with optimized sizing - the old one being closed & a new one being initiated each time the forward expectancy is re-evaluated (weekly, daily, hourly...whatever). Perhaps this conceptualization will assault your sensibilities less than the term "scaling out".
You'll notice that Mr Quant did not take half his position off during your first expectancy calculation. It was only when a recalculation was done, that a different position size was taken. That is two different trades with two different parameters. That is the essence of my assertion--ie when you take a trade, let the trade run to full maturity. Don't miss the point of this thread. Trades can be on time frames of one minute etc, but the need to be allowed to run.
Quote from Buy1Sell2:
You'll notice that Mr Quant did not take half his position off during your first expectancy calculation. It was only when a recalculation was done, that a different position size was taken. That is two different trades with two different parameters. That is the essence of my assertion--ie when you take a trade, let the trade run to full maturity. Don't miss the point of this thread. Trades can be on time frames of one minute etc, but the need to be allowed to run.
i scale out when i feel like it. not often though.
ET just never ceases to amaze me....
my account is not terribly large. the stakes are not terribly high for my account. so, thats the truth above.
Quote from traderNik:
AHA!!!!
So if you put a trade on and then take half off when a profit is available, that's not scaling out, it's 'two trades'!!!
600 pages and in the end you were saying nothing at all. At least you have the decency to call what you are saying 'assertion'. It is truly that.
Quote from Buy1Sell2:
No. You have not been paying any attention. When someone takes a trade, it should be let run to maturity, with full position period.
Quote from taowave:
Not period..just your opinion and no more than that
__________________
------------------------
The things people believe in are usually just what they instinctively feel is right; the justifications and arguments are the least important part of the belief.
That's why you can win the argument, prove them wrong, and still they believe what they did in the first place. You've attacked the wrong thing.
So what do you do? Agree to disagree. Or fight. - C. Zakalwe.
Quote from taowave:
Not period..just your opinion and no more than that
Quote from kiwi_trader:
But you've got to give him Obsession Points for carrying on this argument so so long.
Quote from Buy1Sell2:
No, it is mathematical fact. By not scaling out. a trader will reap larger rewards than the trader who is scaling out.
It is my belief that unless you have been fortunate enough to devise a trading system with precise mathematical and quantifiable rules, you will always succumb to scaling out. When you scale out, it is because you have not found the proper rules to keep you in a trade or position. Certain events should occur before starting or ending a trade or position and until those rules or events are solidified, you will have to resort to scaling out which I agree is inferior behavior as well. But without a decisive rule set, it is all most have to rely on to achieve profits.
__________________
If you cant' catch a wave, you're never going to ride it.
I'm amazed at how long this thread has been going on. There is nothing that can be proven, and the thread title is fallacious at best.
However, apparently there is something amusing about it all.
c
Quote from wave:
It is my belief that unless you have been fortunate enough to devise a trading system with precise mathematical and quantifiable rules, you will always succumb to scaling out.
Well said!
Quote from wave:
It is my belief that unless you have been fortunate enough to devise a trading system with precise mathematical and quantifiable rules, you will always succumb to scaling out. When you scale out, it is because you have not found the proper rules to keep you in a trade or position. Certain events should occur before starting or ending a trade or position and until those rules or events are solidified, you will have to resort to scaling out which I agree is inferior behavior as well. But without a decisive rule set, it is all most have to rely on to achieve profits.
One of the aspects I enjoy w/ ET is being exposed to the myriad ways that different traders exploit the mkt for profit - bordering on mind-boggling when you think about it....
Quote from Buy1Sell2:
No. You have not been paying any attention. When someone takes a trade, it should be let run to maturity, with full position period.
Quote from cgroupman:
I'm amazed at how long this thread has been going on. There is nothing that can be proven, and the thread title is fallacious at best.
Once in a while a few angels appear in our lives. I've had one already appear years back and recently a new one (Buy1Sell2). For those willing and fortunate enough to understand and read into what was taught here and in other forums , you are onto prosperous paths. It can be proven, it is all mathematical and quantifiable.
__________________
If you cant' catch a wave, you're never going to ride it.
Quote from wave:
It is my belief that unless you have been fortunate enough to devise a trading system with precise mathematical and quantifiable rules, you will always succumb to scaling out. When you scale out, it is because you have not found the proper rules to keep you in a trade or position. Certain events should occur before starting or ending a trade or position and until those rules or events are solidified, you will have to resort to scaling out which I agree is inferior behavior as well. But without a decisive rule set, it is all most have to rely on to achieve profits.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Mark-
Are these a boundary of market "conditions" or explicit rules?
Conditions don't portray decisiveness to me.
__________________
If you cant' catch a wave, you're never going to ride it.
Conditions to me are :
The market is bullish.
The DOW is up 200 points.
The tick and tack are at extremes.
The DAX is bullish.
The SOX is smelly to me.
and so on.
Rules:
B is greater than A and C is less than A.
Trade with the rules, ignore the conditions.
__________________
If you cant' catch a wave, you're never going to ride it.
Quote from wave:
Mark-
Are these a boundary of market "conditions" or explicit rules?
Conditions don't portray decisiveness to me.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from wave:
It is my belief that unless you have been fortunate enough to devise a trading system with precise mathematical and quantifiable rules, you will always succumb to scaling out.
Quote from Buy1Sell2:
No, it is mathematical fact. By not scaling out. a trader will reap larger rewards than the trader who is scaling out.
Quote from wave:
Once in a while a few angels appear in our lives. I've had one already appear years back and recently a new one (Buy1Sell2). For those willing and fortunate enough to understand and read into what was taught here and in other forums , you are onto prosperous paths. It can be proven, it is all mathematical and quantifiable.
Quote from taowave:
I have asked you repeatedly for some trading rules to apply your definitive rule,and all you can come up with is bullshit statements like "its a mathematical fact
Quote from traderNik:
Don't forget that other gem from B1S2
"The optimal exit point for any trade can be determined before the trade is put on"
Quote from taowave:
It is no mathematical fact.It is your opinion.I have asked you repeatedly for some trading rules to apply your definitive rule,
Quote from taowave:
Remember you are the same person who admitted that you once believed scaling in was the "proper way to trade"...Was that a mathematical fact as well,until you changed your stance??
Quote from Buy1Sell2:
for a given signal and timeframe I, (or anyone) can determine the optimal profit target over the long haul. It cannot be determined on each individual trade before you put it on, but you can know over a series of trades what the best profit target is. Now as far as what I do with trailing stops, I can look at the market and establish when it is going to reverse with a great deal of accuracy, but this only as the trade is occurring, not before the trade starts.
Scaling out is usefull in both Long term as well as Short term trading. You never know when a position will go in your face.
Best to take some off and cover expenses. There are also positive mental aspects in taking some off the table.
Quote from 2006:
Scaling out is usefull in both Long term as well as Short term trading. You never know when a position will go in your face.
To each his own. I'm just stating my opinion from experience.
If he's getting rich using that method than more power to him.
No flame here on other's techniques.
I never scaled out... but I realized many of the SUCCESSFUL people in my prop firm used scaling out as viable exit strategy. Of course there might be situations where you exit out all your positions, instead of scaling out, but from what I undertand by limiting yourself by not including scaling out as part of your overall exit strategy is a big mistake. I'm gonna start including scaling out for part of my exit strategy!!!!!
You guys have to understand something.
Imagine you knew to some probability > 50% what your opponent was going to do. Then you could use that information to advantage by estimating probabilities of opponent choice.
Imagine you are a fund and you have to buy 10 million shares of stock. You can either use a VWAP style to accumulate those shares, or you could use a hybrid strategy of, VWAP + wait for pullbacks, to buy the some of the shares. If the funds "knew" that scale out behavior by traders was the preferred choice, it could in effect be able to lower it's cost of acquiring those shares by runing the hybrid strategy. Of course, if we knew that they knew what we know...
Read up on Axelrods Prisoners Dilema, and see how a modified Tit-For-Tat was able to beat Tit-For-Tat
http://www.synctrading.com/phpbb/viewtopic.php?p=61#61
if the program had some knowledge of the opposing program.
My point is, you should run mixed strategies on exit, and not be a sitting target.
nitro
__________________
"You have to fix your roof when it's sunny outside" - JFK
excellent trading post.
game theory 101
the OP has no idea what he is talking about btw
but you do
such a dumb thread.
how about if you are trading an illiquid stock in which you have a considerable position? would you scale out then?
or if you are trading a liquid stock and have a monster position. I guess hitting the bid with a market sell would be the best thing to do..
GL
Quote from I Trade 4 Money:
I never scaled out... but I realized many of the SUCCESSFUL people in my prop firm used scaling out as viable exit strategy.
Quote from nitro:
My point is, you should run mixed strategies on exit, and not be a sitting target.
nitro
Quote from GSCO:
how about if you are trading an illiquid stock in which you have a considerable position? would you scale out then?
or if you are trading a liquid stock and have a monster position. I guess hitting the bid with a market sell would be the best thing to do..
GL
Quote from taowave:
At long last......The major fallacy in your argument is that you are gifted with the ability to " look at the market and establish when it is going to reverse with a great deal of accuracy"and "universally" apply a methodology that works best with those who can accurately predict market behavior..Quite frankly,if I had that gift,I wouldnt bother with trailing stops,and I am not sure why you do...
Your title should have read "Scaling out is inferior behavior IF you are the 1 in 10,000 trader who can look look at the market and establish when it is going to reverse with a great deal of accuracy"...That is the major reason you should liquidate 100%,and a very good argument for applying as much leverage as you can stomach.
You need to understand that you (apparantly) are a very good reversal trader and that the majority of traders are not.So,once again,liquidating 100% works best for your given skill set.To say that Scaling out is inferior is naive,misleading and FALSE...
Quote from 2006:
There are also positive mental aspects in taking some off the table.
Quote from Buy1Sell2:
Note: I didn't say you couldn't be successful by scaling out. It is just inferior over the long haul to a strategy that does not scale out.
Quote from Buy1Sell2:
Note: I didn't say you couldn't be successful by scaling out. It is just inferior over the long haul to a strategy that does not scale out.
Quote from Buy1Sell2:
If you are trading an illiquid instrument, you should make certain that you are extremely underleveraged. But the same principles apply--exit all at once.
Always exit all at once. 401ker's are the only ones who should scale out.
Don't bother with facts, GSCO. We have provided ten different explanations to B1S2 as to why his blanket statement is untrue.
Recently he tried to get out a side door by saying that when you take half a position off you are not scaling out, but in fact initiating a new trade.
The bottom line is - there are several different and unrelated situations in which scaling out might be the optimal strategy. The most obvious is in automated trading system design. B1S2's assertion is based on a false premise - that one can 'identify the optimal exit point for every trade before the trade is initiated'.
Quote from GSCO:
I'll throw out half my position just to see how strong the market is. and if it swallows it up. Then I may buy more because the strength is there.
Seems like your strategy makes some sense.
another one of OP's faults is that he fails to recognize the difference in what is an optimum strategy.
for example, assume that given one's methodology/system that scaling out gives an average return of 500% per year with a 10% risk of 30% drawdown and a 5% risk of ruin
and that setting a hard target of X points for the same setup gives an average return of 600% per year with a 15% risk of 30% drawdown and a 10% risk of ruin.
which is "better?"
well... that depends
different exit strategies do not just affect the total % return, given sufficient 'n' for the edge to work out.
they also affect smoothness of equity curve, drawdown, risk of ruin, etc.
of course the fact that he is already backpedaling, without admitting his logical errors, shows that he is just wasting our time with his trollish postings anyway
Not to pile on the OP, but...
"Failing to risk-adjust your returns" is inferior behavior.
Quote from whitster:
of course the fact that he is already backpedaling, without admitting his logical errors,
Quote from traderNik:
Recently he tried to get out a side door by saying that when you take half a position off you are not scaling out, but in fact initiating a new trade.
Quote from traderNik:
B1S2's assertion is based on a false premise - that one can 'identify the optimal exit point for every trade before the trade is initiated'.
Quote from GSCO:
(this will probably be taken the wrong way) but it's obvious you've never traded in a stock where you are a big player. Not that you're style doesn't make money. But just don't be ignorant of how others can make money in different ways.
Quote from Buy1Sell2:
In the Mr Quant example, the trader did not remove any of the trade before the expectancy calculation was achieved.
Quote from Buy1Sell2:
my research shows ...
Quote from Buy1Sell2:
As far as scaling in goes, my research shows that I would have made more by not scaling in and so I was incorrect in thinking that scaling in was better. It is not. Bottom line, I still stand by what I have mathematically proven several times in this thread and with personal experience. Scaling out is inferior behavior.
Quote from taowave:
To be honest,I am clueless as to why you bother with optimal profit targets and trailing stops when you possess the unique ability to call reversals with a high degree of accuracy..
Quote from BlindLemonBoosh:
Mr. Quant also scales out before the original expectancy has been achieved if the newly calculated expectancy dictates to do so. This is commonly referred to as "reacting to changing market conditions".
Would you like me to present a new example?
Quote from GSCO:
(this will probably be taken the wrong way) but it's obvious you've never traded in a stock where you are a big player. Not that you're style doesn't make money.
Quote from BlindLemonBoosh:
Not to pile on the OP, but...
"Failing to risk-adjust your returns" is inferior behavior.
Quote from nitro:
[...]
if the program had some knowledge of the opposing program.
[...]
nitro
Quote from Buy1Sell2:
My risk adjustment is trailing stops. It is a very very good risk adjustment technique.
Quote from traderNik:
Wow, you must have missed out on some huge moves when your trailing stop was hit after a decent up move, and you liquidated your entire position instead of scaling out, only to see the stock go to the moon.
Quote from Buy1Sell2:
Scaling out is done by traders who are anxious to lock in a partial profit in order to maintain a psychological benefit when trading. However, they are not in with the full position EVER when the trade runs all the way.
Lastly for today anyway-- There are many gurus and investment books that tout scaling out. Why would that be? It is because brokers and industry professionals love the scale out trader. It requires more transactions to make money. This results in higher commission revenues and more liquidity in the markets. This is one of the reasons that you can always buy the first break. God Bless the scale out trader.
Quote from Buy1Sell2:
There are many gurus and investment books that tout scaling out.
My understanding is this .
1)scaling out is a sub maximal strategy.
however not knowing the maximum before it occurs leaves that unobtainable as a rule anyway.
2) scaling out should enable a more stable equity curve which can be important(not just psychologically) as it can affect the size of subsequent trades.
My belief is that it would really suck to be in on the big move of the year with greatly reduced size.
__________________
I prefer being smart enough to be born lucky, than lucky enough to be born smart.
Quote from Buy1Sell2:
If he is recalculating expectancy before the trade has run to the target, then he is tinkering with any research that he has done in the past and that research becomes null and void. When a target for a particular time frame and signal has been established, then the trade should be let run to that maturity even if it means giving back the profits on this ONE trade.
Quote from Buy1Sell2:
My risk adjustment is trailing stops. It is a very very good risk adjustment technique.
Scaling out if only done to lock in profit is not optimum trading. But still the argument in this thread may be just semantics. For scaling in and scaling out you need to know when. Assume you are trading the days market. Take the standard game of selling the tops of upswings and buying the bottoms of downswings in sequence. You can scale out on the turn and scale in your new position depending on how the turn presents itself. A fast turn may require a reverse in one hit. Your position size and the size of moves, up and down, which you are utilizing are important factors.
Quick note for anyone who is reading here:
What I am discussing is trading over the long haul, not on one individual trade. Scaling out may perform better for days, weeks or even months, but over time, not scaling out will be superior. Thanks
Quote from Buy1Sell2:
Quick note for anyone who is reading here:
Scaling out may perform better for days, weeks or even months, but over time, not scaling out will be superior.
Quote from ranger64:
How could you possibly know? Can you predict the future?
Quote from B1S2:
I know the optimal exit point for every trade before I put the trade on
one point to add here.. scaling out can be an excellent tool in position size management.
especially for long options traders, a profitable position sometimes needs to be pared down because it becomes too large a portion of portfolio risk.
__________________
http://scriabinop23.blogspot.com
Quote from traderNik:
Unbelievably, B1S2's answer to this is YES!!
Strangely, he seems to be unaware of how absurd this claim actually is.
In this thread, the idea that scaling out is always inferior has been shown to be wrong in about 4 or 5 completely different ways.
The key here is to find optimal targets over series of trades not just one trade if you are using targets and to let your trades run if using trailing stops. (Trailing stops are very good at risk adjustment since they can be moved tighter as the trade progresses).
Now that being said, it takes no super intelligence to trade or for that matter any gift. Each trader is capable of everything that I am capable of. We are looking at the same information and have the same standard issue brain. I am no smarter than any other trader out there. I just know how to maximize my profit while limiting losses. There are many of us who can-- however most that are capable do not-- Good trading to all!
Quote from Buy1Sell2:
The key here is to find optimal targets over series of trades not just one trade if you are using targets and to let your trades run if using trailing stops. (Trailing stops are very good at risk adjustment since they can be moved tighter as the trade progresses).
Now that being said, it takes no super intelligence to trade or for that matter any gift. Each trader is capable of everything that I am capable of. We are looking at the same information and have the same standard issue brain. I am no smarter than any other trader out there. I just know how to maximize my profit while limiting losses. There are many of us who can-- however most that are capable do not-- Good trading to all!
Quote from Buy1Sell2:
I am no smarter than any other trader out there. I just know how to maximize my profit while limiting losses.
Quote from optionpro007:
Great post b1s2.
However, after studying your trading philosophy for a while I must add that you indeed have something most others don't have.
Your commitment, determination, discipline and complete trust in yourself and in your system is truly exceptional.
It has been a great example to me.
Quote from optionpro007:
Great post b1s2.
However, after studying your trading philosophy for a while I must add that you indeed have something most others don't have.
Your commitment, determination, discipline and complete trust in yourself and in your system is truly exceptional.
It has been a great example to me.
__________________
If you cant' catch a wave, you're never going to ride it.
Quote from wave:
ditto.
it really seems like this is one of those fundamental building blocks that you decide to either build a system around, or not... imo.
Quote from Buy1Sell2:
I am no smarter than any other trader out there. I just know how to maximize my profit while limiting losses. There are many of us who can-- however most that are capable do not-- Good trading to all!
Quote from incubator:
Post of the dacade!!! on any ET forum!
Any newbie should read this 1000 times.
it takes years to get there,many years
Quote from traderNik:
lol.... B1S2, you really get the cream of the ET crop coming out in support of your (mistaken) assertions.
I personally have allowed so many good entries to evaporate due to not taking a profit in time, so I have decided to start scaling out. I do understand that not scaling out theoretically ought to be more profitable, but I am not able to achieve this. So many times trade goes 2 points in profit and turns back to hit entry level and some times beyond that, if I trail it to break even it still makes it a Net loss. Trouble with keeping small stops and letting winners run (without scaling out), is that the amount of losses can easily match final winning trade.
I think that Buy1Sell2 and Jack Hershey have a lot in common and much to talk about. Anyone who disagrees with them or trades differently is simply doing it the wrong way. I'd love to see an exchange between the two of them.
As an aside, I note that the people who always scale out are very much in the minority in this poll. Oddly enough, so are the people who make money trading. Coincidence? Perhaps...
__________________
I'm handing you no blarney
Thanks for bumping this thread up...
Big wins without scale outs are what successful trading is all about. It is not about taking some off here and there just to bank psychological profits. Winners understand what I am speaking of--
Quote from Buy1Sell2:
Big wins without scale outs are what successful trading is all about. It is not about taking some off here and there just to bank psychological profits. Winners understand what I am speaking of--
__________________
Men are like wine. They start out as grapes, but then it takes a woman to stomp the crap out of them until they're decent enough to have dinner with.
Quote from gnome:
Guess that elimates all the "scalper" mugs...
But allocating $75k+ per 1 contract and total allocation being less than 10% of total net worth is NOT how most would be able to trade, IMO most rely just on minimum margin requirements. To achieve consistent results without having to scale out daytrading index futures is very difficult, I dare say it's not just psychological, it's about banking profits consistently and not giving it away.
Quote from JSSPMK:
But allocating $75k+ per 1 contract and total allocation being less than 10% of total net worth is NOT how most would be able to trade, IMO most rely just on minimum margin requirements. To achieve consistent results without having to scale out daytrading index futures is very difficult, I dare say it's not just psychological, it's about banking profits consistently and not giving it away.
Daytrading and swing trading require different approaches/methods IMO, intraday trend is a short lived event on many days, one moment you see a trend & 5 minutes later it reverses to take out your stops. Using stops outside the noise according to daily chart's support and resistance levels is not practical for daytrading, again IMO.
Quote from JSSPMK:
"... most rely just on minimum margin requirements....
__________________
Men are like wine. They start out as grapes, but then it takes a woman to stomp the crap out of them until they're decent enough to have dinner with.
how can this still be debated.
As I have said before scaling creates two systems (or more). if you do not understand the benefit of blending systems either intuitively or because of system testing - you really have a long way to go.
Quote from jem:
how can this still be debated.
As I have said before scaling creates two systems (or more). if you do not understand the benefit of blending systems either intuitively or because of system testing - you really have a long way to go.
Quote from taowave:
Jem,there is wisdom in what you say...
I think the reason that some of the naysayers can not see the wisdom is that they do not look at scaling,target stops as a simple exit rule,much the same as any other exit strategy...
Moreso,its clear they dont trade multiple systems...
__________________
"You have to fix your roof when it's sunny outside" - JFK
Quote from nitro:
But if you made the "scaling out system" into an independent system that knows nothing of the entries of any other system, then "scaled exits" (because you now have two systems instead of one, one of which looks like it is scaling out of the others position) would be entries for that system and not "scaled exits".
It is confusing, but it is 100% logical.
nitro
Quote from Buy1Sell2:
Correct. And there is nothing wrong with that as long as each system (entry time frame etc) is allowed to run to maturity on each trade. The issue that I have is that when we make an entry on a particular time frame etc., then we should let that trade run to it's full extent whether that is a profit target or a stop out etc.
i like scaling in, but hate scaling out, once im out, im all out.
Quote from JSSPMK:
But have you ever traded very short term charts, 1 & 2 min charts?
Quote from Buy1Sell2:
Certainly. The principles of trading are exactly the same, no matter what time frame. Let winners run, cut losers short, trade with the trend. If maturity for you on an ES 1 minute chart is 3 ticks, then exit all positions at 3 ticks. Don't exit 1 at 1,. 1 at 2 ,and 1 at 3. That's scaredy cat trading.
Quote from Buy1Sell2:
Certainly. The principles of trading are exactly the same, no matter what time frame. Let winners run, cut losers short, trade with the trend. If maturity for you on an ES 1 minute chart is 3 ticks, then exit all positions at 3 ticks. Don't exit 1 at 1,. 1 at 2 ,and 1 at 3. That's scaredy cat trading.
this is so silly.
If you don't understand that there are no guarantees of full maturity going forward and that it is better to trade in a manner that promotes a smoother equity curve - you are not a battle tested trader who understands what it takes to make a living or or you are trading OPM and don't give a crap.
If you are trading your own money the only smart way to trade is with an edge while minimizing risk of ruin.
Quote from JSSPMK:
OK, in that case what would you have said about a trader that managed to generate larger gains by scaling out? Still inferior? Or are you referring to theoretical comparisons?
Quote from jagmot:
B1S2 - another excellent topic, thank you.
I agree that scaling out is inferior (for almost all systems, including mine).
However, I still scale out. The reason I scale out is because I've worked more on my system on *entries* than on exits. I believe entries are the most important part of being a profitable trader. If you don't get the entry right, you'll get stopped out before you get the chance to make money. Once I have my entries down cold, I will be able to work on getting my exits correct and not scale out to early. This will move me from being a profitable trader, to a very successful profitable trader. Until I get there, I plan to continue to scale out.
If I had a multimillion dollar portfolio, I wouldn't trade this way at all. I would just be a writer of options and take very low risk trades.
Quote from jem:
that it is better to trade in a manner that promotes a smoother equity curve -
I think that we have reached the point in this thread whereby continued participation qualifies as inferior behavior.
(Present post excluded, of course. )
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
exactly--it "feels" better to bank partial profits and have the curve go up steadily. This is not the way to milk the market movements for what they are worth, but borkers absolutely love it.
Quote from Buy1Sell2:
If a trader is showing better gains by taking partial profits, it is most likely a function of inability to define trend and reaction highs/lows that is causing the trader to feel they do better just getting in and getting out. It is irrefutable that holding your trades to maturity will always bear more fruit over the long haul.
Quote from Buy1Sell2:
If a trader is showing better gains by taking partial profits, it is most likely a function of inability to define trend and reaction highs/lows that is causing the trader to feel they do better just getting in and getting out...
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Mark, your points are interesting and you took quite a while to put together the reply. Thank you very much for the efforts. They don't really pertain to this discussion however because this is a simple math problem. --It goes without saying that if I hold all of my winning positions to maturity as opposed to taking partial profits, I will be more successful over the long haul than I would otherwise be. This holds true over any time frame and it makes no difference whether my method is profit targets or trailing stops.
Quote from JSSPMK:
How would you rate Apex's performance in relation to yours then? He seems to generate a lot more than you by taking long and short trades and scaling out while doing so, no matter what the trend is. I am certain that in the last 6 months he managed to bank more than you holding your position/s till an optimal exit point.
Quote from jem:
it not only feels better but it is more profitable and it minimizes risk of ruin.
How many 40% drawdowns does it take before you can't come back again.
I was discussing something that anyone who has every spent some time designing systems understands. The larger your profit target the greater your risk of drawdown. (overall). If you have some entry that has a non-linear payoff - we are probably not talking directional trading. ( I understand there may be exceptions to linear payoffs - such as the way turtles scaled into winning moves. Which I think was a brilliant way to try gain edge. Scale into winning movers faster than the market can degrade a signal. )
buy1
Have ever tested entries and exits.
have you done work the maximum favorable excursion and mae.
Do you understand the results.
Quote from jem:
I was discussing something that anyone who has every spent some time designing systems understands. The larger your profit target the greater your risk of drawdown. (overall). If you have some entry that has a non-linear payoff - we are probably not talking directional trading. ( I understand there may be exceptions to linear payoffs - such as the way turtles scaled into winning moves. Which I think was a brilliant way to try gain edge. Scale into winning movers faster than the market can degrade a signal. )
buy1
Have ever tested entries and exits.
have you done work the maximum favorable excursion and mae.
Do you understand the results.
...The larger your profit target the greater your risk of drawdown. (overall)...
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
no mark - don't disappear I don't mind being challenged. I suppose you are saying that if the cycle holds (or perhaps if the cycle does not hold you are just as likely to get 5R as 4R. That would be very interesting.
thanks.
I think what has to be taken into consideration is, which I believe perviously mentioned by Buy1Sell2 though not directly, that he is a multi millionaire, though trading only 10% of his net worth, I think he would have a different view if:
1. He had a 5 digit trading account;
2. Was driven by fast turnaround trading 1 and 2 minute charts;
If you are a daytrader - scaling out is a MUST. Markets go up & down as a yoyo.
Someone tell me, how exactly am I supposed to unwind a position like 30,000 shares long EFUT or JRJC, without scaling out?
I always scale in and out, out of necessity- and I'm kind of surprised that this puts me in the minority here.
__________________
A prohibition law strikes a blow at the very principles upon which our government was founded. Prohibition goes beyond the bounds of reason in that it attempts to control a man's appetite by legislation, and makes a crime out of things that are not crimes.
~Abraham Lincoln
Here's a bit of data on Scaling Out. It's a backtest of a mechanical trading system operating on a portfolio of 90 futures markets, without Scaling Out (labeled "BEFORE") and then with Scaling Out (labeled "AFTER"). The system is fairly long term, holding positions for several months.
Perhaps of note are the changes to
Quote from MGJ:
Here's a bit of data on Scaling Out. It's a backtest of a mechanical trading system operating on a portfolio of 90 futures markets, without Scaling Out (labeled "BEFORE") and then with Scaling Out (labeled "AFTER"). The system is fairly long term, holding positions for several months.
Quote from Rearden Metal:
Someone tell me, how exactly am I supposed to unwind a position like 30,000 shares long EFUT or JRJC, without scaling out?...
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Wow this thread is still alive . . .
I suspect all of you are correct. Much depends on the continuation of the trend. If I trade a security that shows a long continuing trend then holding the entire position from entry to exit makes more money. Lots of securities show shorter trends. It's the shorter trending securities that show better performance with scaling out methods.
I'm working on some computer code to model scaling out trading methods and compare them to, say, a moving average crossover method.
index futures TEND to be (although recently volatility and "trendiness" has spiked) means reversion instruments
this partly has to do with arbs, and there are a # of other reasons.
in a market like that (where i make my living) scaling out makes excellent sense. it also smooths the equity curve (SIGNIFICANTLY)
trading is not just about optimal gains. its about risk adjusted gains, and taking into account - volatility, etc.
nobody KNOWs what the market will do. that's part of the reason why i scale out. in the current environment, i have significantly INCREASED my primary, secondary, and tertiary targets, because the intraday swings have gotten larger. but going all or nothing on (especailly a distant) does not make sense FOR ME in the market I TRADE with my RISK TOLERANCE, my goals (current income) ,etc. its optimal for me.
i wouldn't deign to say scaling out is better or worse for others because there are too many factors that vary from trader to trader
fwiw, in INVESTING i almost never scale out. i hold. been holding AAPL since i started investing. occasionally i will buy protective puts and/or sell covered calls and buy free puts with the premium
sometimes that works out well, sometimes not so much but it depends on way too many factors to say whether it is "inferior" or superior to scale out.
simply put: it depends
This compares two variations of exponential moving average crossover system. System 14 is a long position only exponential moving average crossover system, system 20 is also a long position only exponential moving average crossover system but sells half the position for a 20 % profit and the other half when the fast moving average value is less than the slow moving average value.
The daily stock price data used in this model is Allergan stock symbol AGN 16.86 years from 22 June 1989 to 12 May 2006. Heat is 4 %. Initial capital $ 100000. I observe an optimum CAGR / greatest draw down ratio for both systems using time constants of 40 and 90 days.
Trading results summary:
System 14
long position only exponential moving average crossover system
Number of trades 7
Total profit $ 212296
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 212156
Greatest draw down is 0.0487 (4.87 per cent).
Cumulative Annual Growth Rate (CAGR) is 12.58 per cent.
CAGR / greatest draw down is 2.58
Instantaneously Compounding Annual Growth Rate (ICAGR) is 6.75 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 6.98 per cent.
Information Ratio is 0.54
system 20
long position only exponential moving average crossover system
with partial exit at 20 % profit
Number of trades 11
Total profit $ 113084
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 112864
Greatest draw down is 0.0487 (4.87 per cent).
Cumulative Annual Growth Rate (CAGR) is 6.69 per cent.
CAGR / greatest draw down is 1.37
Instantaneously Compounding Annual Growth Rate (ICAGR) is 4.48 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 4.58 per cent.
Information Ratio is 0.47
This data suggests that the single entry single exit system shows greater profit than the partial exit system. Volatility (greatest draw down or information ratio) is about the same value in both systems.
I select the Standard And Poors 500 index tracking stock symbol SPY for this test using the same two variations of exponential moving average crossover system as above. Since the Standard And Poors 500 index is a composite of prices of 500 stocks I expect price behavior to be less trending than that of Allergan Corporation stock. If price behavior is less trending then I expect the exponential moving average crossover system with partial exit to show greater profit and lesser draw down than the exponential moving average crossover single entry single exit system.
Using 13.54 years daily SPY price data, from 29 January 1993 to 22 August 2006, 3 % heat, optimum time constants of 20 and 70 daily intervals I obtain these results:
System 14
long position only exponential moving average crossover system
Number of trades 8
Total profit $ 177602
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 177442
Greatest draw down is 0.0107 (1.07 per cent).
Cumulative Annual Growth Rate (CAGR) is 13.11 per cent.
CAGR / greatest draw down is 12.23
Instantaneously Compounding Annual Growth Rate (ICAGR) is 7.54 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 7.83 per cent.
Information Ratio is 0.51
system 20
long position only exponential moving average crossover system
with partial exit at 5 % profit
Number of trades 13
Total profit $ 90573
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 90313
Greatest draw down is 0.0107 (1.07 per cent).
Cumulative Annual Growth Rate (CAGR) is 6.67 per cent.
CAGR / greatest draw down is 6.22
Instantaneously Compounding Annual Growth Rate (ICAGR) is 4.75 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 4.87 per cent.
Information Ratio is 0.40
Again, this data suggests that the single entry single exit system shows greater profit than the partial exit system. Volatility (greatest draw down or information ratio) is about the same value in both systems.
MGJ reports test results for a futures trading model, this work tests stock trading models. The results do not agree. Could there be a significant difference in trend behavior of stock prices compared to the trend behavior of futures prices? Could differences in trading method account for the difference between MGJ's results and these exponential moving average crossover system results?
I need more time to validate my computer program for futures trading.
Quote from Hook N. Sinker:
I select the Standard And Poors 500 index tracking stock symbol SPY for this test using the same two variations of exponential moving average crossover system as above. Since the Standard And Poors 500 index is a composite of prices of 500 stocks I expect price behavior to be less trending than that of Allergan Corporation stock. If price behavior is less trending then I expect the exponential moving average crossover system with partial exit to show greater profit and lesser draw down than the exponential moving average crossover single entry single exit system.
Using 13.54 years daily SPY price data, from 29 January 1993 to 22 August 2006, 3 % heat, optimum time constants of 20 and 70 daily intervals I obtain these results:
System 14
long position only exponential moving average crossover system
Number of trades 8
Total profit $ 177602
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 177442
Greatest draw down is 0.0107 (1.07 per cent).
Cumulative Annual Growth Rate (CAGR) is 13.11 per cent.
CAGR / greatest draw down is 12.23
Instantaneously Compounding Annual Growth Rate (ICAGR) is 7.54 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 7.83 per cent.
Information Ratio is 0.51
system 20
long position only exponential moving average crossover system
with partial exit at 5 % profit
Number of trades 13
Total profit $ 90573
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 90313
Greatest draw down is 0.0107 (1.07 per cent).
Cumulative Annual Growth Rate (CAGR) is 6.67 per cent.
CAGR / greatest draw down is 6.22
Instantaneously Compounding Annual Growth Rate (ICAGR) is 4.75 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 4.87 per cent.
Information Ratio is 0.40
Again, this data suggests that the single entry single exit system shows greater profit than the partial exit system. Volatility (greatest draw down or information ratio) is about the same value in both systems.
MGJ reports test results for a futures trading model, this work tests stock trading models. The results do not agree. Could there be a significant difference in trend behavior of stock prices compared to the trend behavior of futures prices? Could differences in trading method account for the difference between MGJ's results and these exponential moving average crossover system results?
I need more time to validate my computer program for futures trading.
When you scale out you are essentially trading different trading systems. Each system must stand on its own --- not as part of a whole--- to argue it is best to scale out. When it does hold true then the discussion can proceed.
Given that, the original poster is essentially arguing that larger profit targets will produce larger total returns then smaller profit targets. How do you need 150 pages to argue that? It will almost always be true.
However by default it also argues that optimizing performance based on total returns is the only correct way to trade. Hence optimizing based on drawdown would be incorrect. How can one argue that as incorrect? Risk adjusted return is really the essence of institutional trading.
Hook N, the comparison you're trying to make is just plain retarded.
(90 futures symbols, 418 months, 1300 trades)
vs.
(1 stock symbol, 202 months, 11 trades)
Simply ridiculous.
I continue to hold Long Yen futures, Long Swiss Franc Futures, Long Euro FX, Long Natural Gas Futures, Long Gold Futures. Long 10 yr note Futures, Long Cotton Futures , Long Coffee Futures and short ES. I hold these at full position and have not scaled out.
You are a God.
Quote from Buy1Sell2:
I continue to hold Long Yen futures, Long Swiss Franc Futures, Long Euro FX, Long Natural Gas, Long Gold. Long 10 yr note Futures, Long Cotton Futures , Long Coffee Futures and short ES. I hold these at full position and have not scaled out.
Quote from GTS:
You are a God.
Quote from Buy1Sell2:
No Sir.
I am human, but I do know the proper way way to trade and that is to cut losses short and ride winners with full position on.
__________________
Trading is an ode to true capitalism. And, to many, an ode to self-destruction. The traditional welcome to this world is telling: You're handed a roll of toilet paper and told, "This place is not for weak stomachs."
scale out
I agree that scaling out just does not seem to work for me.
I think you need a reason to get in a trade and get out of a trade.
The problem with scaling out and/or raising your stop loss is that you then bring in your stop to a point where the market usually hits it on a re-test of recent lows.
What I still would like to have is the ability to hedge trades to prevent getting killed by those that hunt my stop.
Re: scale out
Quote from oraclewizard77:
I agree that scaling out just does not seem to work for me.
I think you need a reason to get in a trade and get out of a trade.
The problem with scaling out and/or raising your stop loss is that you then bring in your stop to a point where the market usually hits it on a re-test of recent lows.
What I still would like to have is the ability to hedge trades to prevent getting killed by those that hunt my stop.
__________________
Trading is an ode to true capitalism. And, to many, an ode to self-destruction. The traditional welcome to this world is telling: You're handed a roll of toilet paper and told, "This place is not for weak stomachs."
Re: scale out
Quote from oraclewizard77:
...What I still would like to have is the ability to hedge trades to prevent getting killed by those that hunt my stop.
__________________
I'm handing you no blarney
I scaled out of over half my commodity exposure last week, then bought back this week. I lost a lot less during the pullback last week and on Monday, and then took advantage to rebuy on Tuesday and in some cases (e.g. Cocoa) double up.
This resulted in lower losses and risk during the pullback, and superior profits after rebuying. My drawdown was a lot less and subsequent returns this week were higher as a result. Scaling out at a point of high risk, then rebuying at lower risk, higher return levels, proved far superior to just holding on.
Quote from Cutten:
I scaled out of over half my commodity exposure last week, then bought back this week. I lost a lot less during the pullback last week and on Monday, and then took advantage to rebuy on Tuesday and in some cases (e.g. Cocoa) double up.
This resulted in lower losses and risk during the pullback, and superior profits after rebuying. My drawdown was a lot less and subsequent returns this week were higher as a result. Scaling out at a point of high risk, then rebuying at lower risk, higher return levels, proved far superior to just holding on.
If you don't know how to trade, all exit strategies are "inferior".
If you know how to trade, it does'nt matter what you use.
my 0.02
Quote from Cutten:
...Scaling out at a point of high risk, then rebuying at lower risk, higher return levels, proved far superior to just holding on.
__________________
I'm handing you no blarney
Quote from Thunderdog:
I agree. Your argument is a variation of the trade versus buy (or sell) and hold debate. I think that traders who oppose scaling out are cousins of the buyers-and-holders.
Quote from Buy1Sell2:
Taking all off at high risk and rebuying all at lower risk is the better plan than scaling out. This discussion is not about buying and holding. It is about whether scaling out on any time frame including 1 minute charts is a superior play and it is very clearly not. Cutten illustrated the point in full very well
__________________
I'm handing you no blarney
My 2 cents:
I think both scaling in and scaling out are inferior.
If you're scaling in, it means you're timid about your entries and you need to work that: find better entries.
If you're scaling out, it means you're timid about your exits and you need to work on that: find better exits.
It's all about timing, folks: when to get in and when to get out. That's your edge. Money management comes in to wring the maximum advantage out of your edge, but it doesn't create your edge.
Scaling in and scaling out are ad hoc money management gimmicks to try to overcome weak entries and weak exits. If that works for you, OK, but let's not pretend like it's better than having strong entries, strong exits and optimal position sizing.
Let the flames begin.
Please read my preceding post, kut2k2.
__________________
I'm handing you no blarney
I did. I'm not looking for certitude, I'm looking for maximum profits.
Quote from Thunderdog:
Please read my preceding post, kut2k2.
Scaling out on winners ensures lower exposure on the inevitable big winners.
It would make more sense to scale out of the losers, because that would ensure lower exposure on the inevitable big losers. Better yet, get out the losers, and move on, getting back in the hunt for winners.
Psychologically, it is harder to let winners ride than to cut losers short. No one wants to be in that 95% camp of the losers, so they cut short winners out of fear they'll turn into losers.
Cutting losers short is not enough. One must have the courage to let winners ride. Few can do that; hence, few are winners.
This, btw, is a cognitive bias referred to as loss aversion. Perhaps it should be called loss IMMERSION, since in trading terms it will lead in the long run to drowning in losses.
In the end, they want to win less than they don't want to lose, and ironically, they end up losers anyway.
Quote from kut2k2:
...I think scaling out is an attempt to maximize win rate rather than maximize profits.
Quote from kut2k2:
...To each his own.
__________________
I'm handing you no blarney
It's not undue if you use optimal position sizing. That's what it's there for.
Quote from Thunderdog:
And because of the uncertainty associated with the markets and price movement, irrespective of how good you think your entries are, I think that single exits are somewhat akin to playing a lottery with undue confidence.
Quote from arealpissedgoy:
If you don't know how to trade, all exit strategies are "inferior".
If you know how to trade, it does'nt matter what you use.
my 0.02
__________________
Spiral Out. Keep going.
Quote from kut2k2:
It's not undue if you use optimal position sizing. That's what it's there for.
The problem is that scaling really (I mean REALLY) complicates your position sizing. Instead of a single return per trade, you're now juggling two or more returns per trade.
Give me any sequence of single trade returns and I can give you an ongoing updated optimal-fraction sizing of your trading account for the next trade. It's a lot harder to do that with scaling out, and even more so if there's in-scaling in different proportions than the out-scaling.
__________________
I'm handing you no blarney
Quote from Thunderdog:
I think I now understand where you're coming from. And I disagree. I believe you are placing far too much confidence in your mathematical specificity. Good luck with that. Optimal-fraction sizing? Are you a Ralph Vincer? If you think you can model trade size with such clarity and confidence and apply such specificity to future trades with back tested performance, then I think you are due for a surprise that has not visited upon you just yet.
Remember the definition of a calculator: a device that allows you to take two seat-of-the-pants estimates, multiply them, and get accuracy to the 8th decimal point. Past performance is at best an educated guess at future performance, not that much better than an informed "seat-of-the-pants" estimate. Too much emphasis on the word "optimal" in this context is a joke. Just my opinion, of course.
Quote from kut2k2:
...Tell me, what are you using for position sizing if you don't believe in trying to optimize it? I'm honestly curious.
__________________
I'm handing you no blarney
OK how about a simple test? You pick the stock (free historical data available at yahoo), you pick the time period (5+ years), you pick the public domain timing strategy, you pick the initial account size, etc. The only variable will be your fixed-fraction position sizing versus my alleged optimal position sizing, and we'll see which is riskier (you pick the criterion for that as well
Quote from Thunderdog:
A very small fraction of my account size. I might vary it slightly, depending on the quality of the setup, but that's mostly just to make myself feel important.
).
Quote from kut2k2:
OK how about a simple test? You pick the stock (free historical data available at yahoo), you pick the time period (5+ years), you pick the public domain timing strategy, you pick the initial account size, etc. The only variable will be your fixed-fraction position sizing versus my alleged optimal position sizing, and we'll see which is riskier (you pick the criterion for that as well
Have a good weekend.__________________
I'm handing you no blarney
Fair enough. You have a good one as well, TD.
Quote from Thunderdog:
Thanks for the offer, but I principally trade NQ intraday using solely my own method, which I am not prepared to share in any detail. The relative size of my trades is a function of my familiarity with that market and my comfort level with my own approach. However, I will stipulate that you are prepared to put your sizing approach to the test and are not just passing wind. Fair enough?
Quote from smilingsynic:
Scaling out on winners ensures lower exposure on the inevitable big winners.
Psychologically, it is harder to let winners ride than to cut losers short. No one wants to be in that 95% camp of the losers, so they cut short winners out of fear they'll turn into losers.
Cutting losers short is not enough. One must have the courage to let winners ride. Few can do that; hence, few are winners.
Quote from kut2k2:
Scaling in and scaling out are ad hoc money management gimmicks to try to overcome weak entries and weak exits. If that works for you, OK, but let's not pretend like it's better than having strong entries, strong exits and optimal position sizing.
Just to clarify my opinion in this thread, it applies only to mechanical traders. I would not presume to know what is best for a discretionary trader, that being a highly subjective and individualistic activity.
Quote from Buy1Sell2:
Most assuredly.
Sacling out appeals to traders who are overexposed with their position sizing. It is a scaredy cat strat.
Quote from kut2k2:
Just to clarify my opinion in this thread, it applies only to mechanical traders. I would not presume to know what is best for a discretionary trader, that being a highly subjective and individualistic activity.
But for mechanical trading -- trading which can be programmed into a computer --, scaling is simply a suboptimal strategy. Optimal position sizing precludes scaling in because the last thing a trader wants to do is add to a position that is already optimal size, and scaling out leads to lower profits.
Like so many of these trading conversations on ET, those Posters who have reached a critical mass of knowledge with their trading can see the point of view of those who are trailing behind them
but the reverse seldom applies.
As to "scaling" I do not engage in it for two reasons.
1 ... I trade ES several times each morning and things are happening very fast.
2 ... more importantly, I am not here to
maximise trades, only daily profits.
I regard each trade as a "stand alone" trade.
Quite frankly, I am only interested in my daily ratios.
regards
f9
Wow, this thread is still alive? A year or so later, my opinion stands as:
Sometimes I sell everything at once.
Sometimes I scale out slowly, especially in a thin name.
Sometimes, after exiting a partial position, I will rebuy/sell and double up on the position, depending upon how the tape subsequently acts.
I hope that's concrete enough for some of you, and vague enough for others.
Quote from Van Halen:
Although there are exceptions to every rule, I generally agree with B1S2. Van Tharp (Trade your way to financial freedom) discusses the pitfalls of scaling out also.
Quote from traderNik:
One of the biggest mistakes made by beginners is to miss out on the few big trades that can make your week/month - that is, to fail to capitalize on your winners. Hopefully you'll have the flexibility to adjust your strategy to take advantage of those big moves.
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.
--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.
__________________
punk_ash
Quote from Buy1Sell2:
One common adage...that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.
William Eckhardt
The way to build [superior] long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.
Stanley Druckenmiller
scaling in is as inferior as scaling out - seriously..........nail the entry and nail the exit
i'm saying go all in on the position without investing all your capital into it........leave plenty of capital for other positions.......leave 90% for other positions
the only smart reason to scale in/out is due to liquidity/slippage issues
guys that like to scale like to increase their win rate instead of the amount of money won.......its an ego thing
i scale in because i counter trade and when its nearing a line for a bounce it doesnt always get there,, by scaling in im sure to get partially short/long if it doesnt reach the level i foresee
Quote from chewbacca:
scaling in is as inferior as scaling out - seriously..........nail the entry and nail the exit
i'm saying go all in on the position without investing all your capital into it........leave plenty of capital for other positions.......leave 90% for other positions
the only smart reason to scale in/out is due to liquidity/slippage issues
guys that like to scale like to increase their win rate instead of the amount of money won.......its an ego thing
Re: Re: scale out
similar to having an extra gun in a cop movie when they take your first one,you still have powder,to reenter or add size if the mrkt surprises you,you're short a 10 lot of spus,at 1330, you have buy stops in2@32 ,2@ 34 , 2@ 36. 4@40,mrkt takes 32 ,34, trades to 37 and you sell 6 back out ,spus dropp to 1320 and you cover,you protected your losses and increased your profits,didnt take a ton of pain so that you werent shaken out of the trade
Quote from Thunderdog:
I wonder what the cost of that hedge would be as compared to a simple, no-nonsense protective stop. I'd love for someone to present us with a numerical, real world example illustrating the cost/benefit of such hedge as compared to a reasonably well-placed protective stop in the context of the trading strategy in question. Anyone?
Scaling out is absolutely not an inferior way of trading. For 2 reasons.
1. There is no inferior way in trading, do what makes money FOR YOU.
2. Scaling out of positions takes advantage of probabilities. I always take profits in that way.
-First 1/4 is taken at the profit level of 2x my stop. This allows me to give the market room and takes advantage of the fact that I may still be wrong but get some arbitrary move. BUT now I only have the loss of half of my position.
-The rest, if successful, is ridden to my target.
Trading this way allows me to have very very very few red days. Thus smoothing out my profit curve immensely.
I believe in going into every trade with a tight stop, and a price target that is usually 8-20x the potential loss. I may only have 1 right trade a day, but chances are that I still made money.
when u go for 8-20xyour potential loss,u have a small stop or a very large move in the mrkt,which is it?
Quote from trackstar:
Scaling out is absolutely not an inferior way of trading. For 2 reasons.
1. There is no inferior way in trading, do what makes money FOR YOU.
2. Scaling out of positions takes advantage of probabilities. I always take profits in that way.
-First 1/4 is taken at the profit level of 2x my stop. This allows me to give the market room and takes advantage of the fact that I may still be wrong but get some arbitrary move. BUT now I only have the loss of half of my position.
-The rest, if successful, is ridden to my target.
Trading this way allows me to have very very very few red days. Thus smoothing out my profit curve immensely.
I believe in going into every trade with a tight stop, and a price target that is usually 8-20x the potential loss. I may only have 1 right trade a day, but chances are that I still made money.
Quote from ammo:
when u go for 8-20xyour potential loss,u have a small stop or a very large move in the mrkt,which is it?
A bird in the hand is worth two in the bush.
As long as adequate risk control is practiced for the downside- scaling out produces a REALIZED profit vs a mere THEORETICAL or POTENTIAL profit.
As it was stated earlier, scaling out is taking advantage of probabilities.
Either one can work just fine for a trader, but it needs to fit their method and personal appetite for risk.
The downside to it all is that you must be relentless with your downside protection, or maybe even scale out losses. The danger is that you are taking a FULL LOSS at a stop out, whereas only PARTIAL PROFITS are being realized in a scale out basis. You must ensure that you are not causing downside imbalances in your risk/reward ration by scaling out.
No one way to trade properly. It's a very dynamic situation.
__________________
Spiral Out. Keep going.
i usually use a 2 point stop in es,any smaller and i would get stopped out too often, that would mean a 16-40 point move,i guess that would be possible in the last 2 weeks,or u r using a smaller stop.,thats why i asked
Quote from trackstar:
I have no idea what you are asking. I have both a tight stop and a decent sized move anticipated. It makes it very clear cut when I am wrong.
I would have liked to vote in this poll, but the correct answer isn't a choice.
The correct answer is it depends! What does it depend upon? Any number of variables. Well, how does someone find the variables? The market and correct analysis thereof will answer any and all questions.
Such as, when to;
1. enter
2. hold or reverse
3. add or subtract
4. exit
Quote from chewbacca:
scaling in is as inferior as scaling out - seriously..........nail the entry and nail the exit
i'm saying go all in on the position without investing all your capital into it........leave plenty of capital for other positions.......leave 90% for other positions
guys that like to scale like to increase their win rate instead of the amount of money won.......its an ego thing
Quote from trackstar:
-First 1/4 is taken at the profit level of 2x my stop. This allows me to give the market room and takes advantage of the fact that I may still be wrong but get some arbitrary move. BUT now I only have the loss of half of my position.
-The rest, if successful, is ridden to my target.
Well I have to admit I disagreed with buy1sell2 on this. I have changed my trading to reflect this style and have been more profitable.
The proof is in the dollars for me.
Quote from Reaver:
No one way to trade properly.
Quote from HolyGrail:
Well I have to admit I disagreed with buy1sell2 on this. I have changed my trading to reflect this style and have been more profitable.
The proof is in the dollars for me.
Quote from Buy1Sell2:
False.
Choking off profits by scaling in or scaling out is a scaredy cat strat designed to stroke the "trader's" emotional outlook/ego. Sorry, if this is any of you, but it is the truth.
Quote from Buy1Sell2:
If you have an opportunity, or feel the need to share, please let us know the porgression of thought processes and actions that brought you to where you are now--.
It may help others--
Quote from ammo:
i usually use a 2 point stop in es,any smaller and i would get stopped out too often, that would mean a 16-40 point move,i guess that would be possible in the last 2 weeks,or u r using a smaller stop.,thats why i asked
Quote from Buy1Sell2:
No---Better bet is to ride the full amount to the target.
This is correct - for many of these reasons I scale in and out for most of the systems I trade. I have found that dynamic entries/exits are much more scalable than static ones - another reason I use the approach that I do. Works for me but is not the only way.
Quote from J-Trade:
Well said, vhehn.
The best trader I know - a very successful man - scales both in and out.
In backtesting mechanical trading systems with a suitable parameter set , I have noted that scaling out almost always reduces total net profit, whilst also smoothing the equity curve, increasing the winning percentage and reducing the drawdowns. Many would find these worthwhile trade-offs, as do I.
J.
Quote from Buy1Sell2:
False.
Sorry, if this is any of you, but it is the truth.
__________________
Spiral Out. Keep going.
Quote from Buy1Sell2:
Choking off profits by scaling in or scaling out is a scaredy cat strat designed to stroke the "trader's" emotional outlook/ego.
__________________
Spiral Out. Keep going.
Quote from Reaver:
Also remember that this is a psychological game we play here. Whatever helps build confidence is very important as well.
OP, forgive me if you answered this, but what instruments are you trading?
Quote from Reaver:
Also remember that this is a psychological game we play here. Whatever helps build confidence is very important as well.
Quote from Buy1Sell2:
False.
There may be many different profitable signals , triggers etc., but there is only one proper way to trade. That is: Cut losers short and ride winners to either the target or the trailing stop with full position on. Choking off profits by scaling in or scaling out is a scaredy cat strat designed to stroke the "trader's" emotional outlook/ego. Sorry, if this is any of you, but it is the truth.
Quote from illiquid:
Have you ever tried to sell 3000 shares of BIDU exactly at the "top"? Or at any single price or moment in time, for that matter?
The real "truth" is that adaptability is the ONLY secret to successful over the long haul (meaning multiple decades). Scaling out becomes a necessity every successful trader eventually needs to deal with, because let's face it, if you really know what you're doing, I mean REALLY know, you will get big, and get big fast, relatively speaking.
Specifically, when it comes to intraday equities trading, scaling in/out is more than just a strategic option -- it's almost intrinsic to the profitable trader's mindset. Those who understand how the tape functions know exactly what I'm talking about. Those who have failed miserably in this regard and automatically claim one single way to trade "properly" -- well, their 'conclusions' are unsurprising and speak for themselves.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from NihabaAshi:
By the way, the thread starter twice told me in this thread he wasn't interested in real trading situations...
One such occasion he requested I start a thread elsewhere on such a topic involving real trade conditions where scaling out is more important.
Mark
Quote from NihabaAshi:
By the way, the thread starter twice told me in this thread he wasn't interested in real trading situations...
One such occasion he requested I start a thread elsewhere on such a topic involving real trade conditions where scaling out is more important.
That told me he was talking more about theory than what actually happens.
Mark
Quote from Buy1Sell2:
False.
I am very interested in real trading situations. In real trading, it makes sense to remove all the trade at once and get into trades all at once at all times. If you trade an instrument that is difficult to get out of all at once, then the position should be smaller or you shouldn't trade that instrument period.
My suggestion was not about opening another thread about real trading situations. My suggestion was that your discussion of what is in trader A's head versus what is in trader B's head is not relevant ro this debate. The math doesn't change based upon a trader's style. It is always better in the long run to not scale in or out.
I am certainly not discussing just theory here. I'm talking in terms of reality.
Quote from illiquid:
Have you ever tried to sell 3000 shares of BIDU exactly at the "top"? Or at any single price or moment in time, for that matter?
The real "truth" is that adaptability is the ONLY secret to successful over the long haul (meaning multiple decades). Scaling out becomes a necessity every successful trader eventually needs to deal with, because let's face it, if you really know what you're doing, I mean REALLY know, you will get big, and get big fast, relatively speaking.
Specifically, when it comes to intraday equities trading, scaling in/out is more than just a strategic option -- it's almost intrinsic to the profitable trader's mindset. Those who understand how the tape functions know exactly what I'm talking about. Those who have failed miserably in this regard and automatically claim one single way to trade "properly" -- well, their 'conclusions' are unsurprising and speak for themselves.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Trader A and Trader B can use different styles and different time frames. One can be discretionary and one automated. One can be well adjusted and one can be manic-depressive. One can have large capital and one can have little or no capital. None of these things apply to real situation math which shows that the trader reaping the greatest benefit over the long haul will be the one who does not use scaling ever. Common sense would tell you that if I hold a position (even on a one minute frame signal) to the target or trailing stop with full position, and I cut my losers short, that I will be more profitable, or lose less than scaling traders. This is not on one individual trade, but over the long haul.
Quote from NihabaAshi:
[B By the way, I trade the Russell 2000 Emini ER2 and on some occasions there are times when trading a very large ER2 size that scaling out at/above the profit target when reached has more merits because I know what happens when trying to exit a large position all at once.
Also, I have a few pals that are institutional traders.
Go try to tell them big boys how inferior scaling out is and that they should exit their enter and exit their entire trade positon all at once.
Mark [/B]
Quote from Buy1Sell2:
Trader A and Trader B can use different styles and different time frames. One can be discretionary and one automated. One can be well adjusted and one can be manic-depressive. One can have large capital and one can have little or no capital.
None of these things apply...
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from fearless9:
I was wondering when someone was going to move this thread out of the realms of fantasy and into the real world, especially when you are holding long on a large parcel.
regards
f9
Trader A and Trader B can use different styles and different time frames. One can be discretionary and one automated. One can be well adjusted and one can be manic-depressive. One can have large capital and one can have little or no capital. None of these things apply to real situation math which shows that the trader reaping the greatest benefit over the long haul will be the one who does not use scaling ever. Common sense would tell you that if I hold a position (even on a one minute frame signal) to the target or trailing stop with full position, and I cut my losers short, that I will be more profitable, or lose less than scaling traders. This is not on one individual trade, but over the long haul.
Chewbacca has broken it down perfectly, what else is there to talk about? B1S2 is right, it's just simple math. It's not logical to continue arguing with his statement basing it on how impractical it is, impractical to who, to you? B1S2 is into wealth creation, people in arms for scaling in/out are into trading where trading is a continuous daily environment i.e. a 9-5 job. Find a way to walk away from your LCDs people.
__________________
Romik
Do those here who suggest scaling-out winners also scale out LOSERS (in other words, start dumping before the stop loss is reached)?
i think b1s2 is dead on. I know from experience. I've been scaling out for years now, more often scaling out way too early. For the very reason he stated. Because i take on too much risk. I see this happen to me everyday. Although i do like how it works for me on 4 out of 5 trades, in the end that one that would have worked would have out weighted the 4 winning trades.
Quote from smilingsynic:
Do those here who suggest scaling-out winners also scale out LOSERS (in other words, start dumping before the stop loss is reached)?
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from NihabaAshi:
In real trading conditions, a trader that scales out usually start doing such AFTER a profit target has been reached and then will try to capture more profits on the scale out.
Quote from Buy1Sell2:
This is exactly backwards of reality. In real trading conditions, a trader that scales out usually starts doing so BEFORE a profit target has been reached and then will pull the rest of the contracts BEFORE the profit target is reached. That is fear.
__________________
I'm handing you no blarney
Quote from NihabaAshi:
In contrast, a trader that exits all out at once when the profit target is reached is more often than not doing such out of FEAR because in real trading conditions most traders I've met that exit all at once are using a sell order to be executed automatically when the price target is hit.
Quote from Thunderdog:
How exceptional you are, to know all the right answers with such certitude in an environment of uncertainty, and to be able to second-guess everyone else as well. We must all seem like bungling, confused children to someone of your stature.
Quote from NihabaAshi:
All out at once is the way to go.
Mark
Quote from Buy1Sell2:
...The trader exiting all at once has done their due diligence and realizes the simple math of this premise...
__________________
I'm handing you no blarney
Quote from Thunderdog:
The simple math of predicting the future? Why else would someone go all or nothing unless he had been blessed with foresight? Sorry, hombre, but you are starting to sound a bit like a cartoon character.
Quote from Buy1Sell2:
No one is predicting the future. They are simply using probabilities and tried and true signals to enter and exit. Where the rubber meets the road is in risk management. Yoiu use your full position each time and control the risk by getting out of the full position if it exceeds the max stop loss. For me it is 2 percdent of Total Liquid Net Worth. I'm not reinventing the wheel here.
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
False. --Again this is exactly backwards of reality. The trader exiting all at once is displaying confidence not fear. The trader exiting all at once has done their due diligence and realizes the simple math of this premise. They have traded taking smaller profits over the years and have come to the correct conclusion that scaling out requires more trades and a lot more work than the more profitable way of not scaling. They are confident in their position size and risk level. Very simple, but accurate stuff here.
Quote from Thunderdog:
Very well. After holding court for so long in this thread, would you care to share some performance statistics? You know, the "rubber meets the road" part.
Quote from fearless9:
B1S2
I am not disputing the principal that you are endeavouring to highlight, but I strongly disagree with the dogma that one size fits all.
For example, let us assume that a Trader has accumulated a large position on a good run up the market.
The total position exceeds any normal tic size for that instrument and he wants to clear.
How is he going to achieve this if he doesnt spread the load over several tics.
regards
f9
Quote from Buy1Sell2:
I have listed it elsewhere on ET. Suffice it to say, that is is profitable with very few trades.
__________________
I'm handing you no blarney
Scaling is superior behaviour for intraday futures trading. Enough said.
Only for the long-term trader is not scaling out viable, although I would still scale out LT positions, since you never know what's going to happen tomorrow.
Why not take some off at an optimal point instead of watching it go against you.
If its an optimal point wouldn't you want to take all of it off?
Quote from [Proximo]:
Why not take some off at an optimal point instead of watching it go against you.
Quote from [Proximo]:
Scaling is superior behaviour for intraday futures trading. Enough said.
Only for the long-term trader is not scaling out viable, although I would still scale out LT positions, since you never know what's going to happen tomorrow.
Why not take some off at an optimal point instead of watching it go against you.
__________________
I'm handing you no blarney
Quote from [Proximo]:
Scaling is superior behaviour for intraday futures trading. Enough said.
Only for the long-term trader is not scaling out viable, although I would still scale out LT positions, since you never know what's going to happen tomorrow.
Why not take some off at an optimal point instead of watching it go against you.
Quote from Buy1Sell2:
By using a market order and accepting the slippage.
Ok, we really don't know the optimal point. But we do know where we could have a probable sell zone (if we're long) What I do is take some off at this point. Now if it keeps going great, I'm still onboard, if it pulls back I want to add contracts, as long as the trend is intact and a signal is present.
If I'm confident in the trend then I'll try to hold as long as I can, with minimal scale-outs.
Do what you feel comfortable with. For me its scaling out.
Quote from GTS:
If its an optimal point wouldn't you want to take all of it off?
Quote from fearless9:
B1S2
I am not disputing the principal that you are endeavouring to highlight, but I strongly disagree with the dogma that one size fits all.
For example, let us assume that a Trader has accumulated a large position on a good run up the market.
The total position exceeds any normal tic size for that instrument and he wants to clear.
How is he going to achieve this if he doesnt spread the load over several tics.
regards
f9
Quote from Buy1Sell2:
By using a market order and accepting the slippage.
__________________
"Don't judge each day by the harvest you reap, but by the seeds you plant."--Robert Louis Stevenson
Quote from NihabaAshi:
Ok...time for me to leave this thread when I see a statement like this.
A large position regardless if it occurred all at once or a scale will get buthered via a market order if the price levels are thin.
Newbie traders or traders that don't trade size and considering trading a lot of size if you are properly capitalize for such...
Don't try what Buy1Sell2 just recommended when a position size is too large for what ever reasons unless you have parental guidance.
See ya and the door has hit me on the wait out.
Mark
Quote from Buy1Sell2:
By using a market order and accepting the slippage.
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from EdgeHunter:
To take this "as advice" to go market on a size order in a thin or illiquid market would be very unwise...
2 points all should be aware of in deciding whether or not to continue this discussion:
1) The thread starter made his money on riding long term trends in major markets.
2) The thread starter also gave up on intraday trading because it was "a waste of time" (see other threads).
Now in light of the above (and please correct me if I am wrong, b1s2), you can see why he would/could start such a thread with such conviction -- and also why 2) should be the obvious case.
To say that if one cannot trade a position at a single price at a single moment, a trader should cut down his position size, is a complete fallacy. Any trader worth his salt learns to scale his positions, both entries and exits, if the conditions demand it -- THAT is reality. Do you really expect us to believe that the best traders on the street always enter and exit at one shot? No wonder you would have trouble intraday -- the MMs eat that all-at-once shit up. Stay with your multi-month, once in a decade trendfollowing, where perhaps your theory works best, but stop making me puke with the one size fits all bs.
Quote from [Proximo]:
Scaling is superior behaviour for intraday futures trading. Enough said.
Only for the long-term trader is not scaling out viable, although I would still scale out LT positions, since you never know what's going to happen tomorrow.
Why not take some off at an optimal point instead of watching it go against you.
Quote from smilingsynic:
Enough said?
Regarding intraday swing trading (NOT scalping): Scaling out winners only makes more sense if you also scale out losers.
Otherwise, you're cutting winners short. It should be the other way around.
Trailing stops help lock in gains/limit losses fine enough already. Stops should be trailed more closely as the target is in sight.
If I am willling to risk 2 points for a potential six point gain, for instance, why would I get out at less than 6 unless I have to? The market will make it loud and clear if I have to.
If one uses stops appropriately and judiciously, there is no need to scale out of a winning position.
Quote from fearless9:
You have all got the cart in front of the horse.
Firstly, you need a strategy and into that strategy will fit your theories on scaling and many other things.
I do not scale.
Each trade is a new adventure because I believe in trade size and I will leave you all to figure out the logic.
The reason behind trying to bring this thread to a sensible conclusion is simply because the underlying logic of the OP does not reflect that of a seasoned trader and therefore layers confusion upon confusion upon confusion.
"One size fits all" belongs to paper tigers.
regards
f9
Quote from fearless9:
The reason behind trying to bring this thread to a sensible conclusion is simply because the underlying logic of the OP does not reflect that of a seasoned trader and therefore layers confusion upon confusion upon confusion.
"One size fits all" belongs to paper tigers.
regards
f9
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from EdgeHunter:
Tactical and Strategic Scaling out, as well as sometimes dumping all at the market, is congruent with the way things are... not with the way the OP wants the world to be... as if the world were his black and white one dimensional flat earth plaything...
Quote from traderNik:
he admitted that he believes he knows the optimal exit point for every trade at the moment the trade is placed.
Quote from NihabaAshi:
Ok...time for me to leave this thread when I see a statement like this.
A large position regardless if it occurred all at once or a scale will get butchered via a market order if the price levels are thin.
Newbie traders or traders that don't trade size and considering trading a lot of size if you are properly capitalize for such...
Don't try what Buy1Sell2 just recommended when a position size is too large for what ever reasons unless you have parental guidance.
See ya and the door has hit me on the way out.
Mark
Quote from EdgeHunter:
To take this "as advice" to go market on a size order in a thin or illiquid market would be very unwise...
Quote from illiquid:
2) The thread starter also gave up on intraday trading because it was "a waste of time" (see other threads).
Now in light of the above (and please correct me if I am wrong, b1s2), you can see why he would/could start such a thread with such conviction -- and also why 2) should be the obvious case.
To say that if one cannot trade a position at a single price at a single moment, a trader should cut down his position size, is a complete fallacy. Any trader worth his salt learns to scale his positions, both entries and exits, if the conditions demand it -- THAT is reality. Do you really expect us to believe that the best traders on the street always enter and exit at one shot?
Quote from smilingsynic:
If I am willling to risk 2 points for a potential six point gain, for instance, why would I get out at less than 6 unless I have to? The market will make it loud and clear if I have to.
Quote from fearless9:
Each trade is a new adventure because I believe in trade size and I will leave you all to figure out the logic.
"One size fits all" belongs to paper tigers.
regards
f9
Quote from EdgeHunter:
The world is NOT linear and neat... It is chaotic and messy... and chaos, or life, is built out of scales at all levels... it only appears that it is neat and linear...
[
How is scaling out inferior when on your last trade you had 2 different chances to cover at 1255 but instead covered above 1343 ? ES trades with quite a bit reversion to the mean so it is highly likely that your thinking can be correct but you get whipped out of the position with lower profit due to mean reversion.
Quote from volente_00:
How is scaling out inferior when on your last trade you had 2 different chances to cover at 1255 but instead covered above 1343 ? ES trades with quite a bit reversion to the mean so it is highly likely that your thinking can be correct but you get whipped out of the position with lower profit due to mean reversion.
Quote from volente_00:
How is scaling out inferior when on your last trade you had 2 different chances to cover at 1255 but instead covered above 1343 ? ES trades with quite a bit reversion to the mean so it is highly likely that your thinking can be correct but you get whipped out of the position with lower profit due to mean reversion.
good morning B1S2,
On a forum such as this one, a great number of members are batting way beyond their average and this is revealed in their postings.
We are all judged no only by what we contribute, but most importantly by the manner in which this contribution is made.
Your Op had a very narrow reference (too narrow IMO) and now you are working outside it in order to justify yourself.
Why dont you try sharing and participating ín the discussions instead of your normal fear driven dictatorial style of response.
Good heavens you may even learn something in return.
After all, isnt that the true purpose of ET.
Right now, you leave me with the impression that your somewhat academic pedantic postings are the result of a deep seated fear that is preventing you from moving forward.
Maybe you have gone too far down chartist lane and you cannot take the next step and begin trading a real account.
Maybe this is not the case at all.
But I would suggest that you give thought to your approach if you hope to be taken seriously.
regards
f9
Quote from fearless9:
Your Op had a very narrow reference (too narrow IMO) and now you are working outside it in order to justify yourself.
Quote from smilingsynic:
Hindsight is 20/20.
If it had gone to 1150 and then B1S2 got out at 1200, then covering at 1255 would have appeared unwise.
Shoulda, woulda, coulda.
Quote from Thunderdog:
Very well. After holding court for so long in this thread, would you care to share some performance statistics? You know, the "rubber meets the road" part.
Quote from Buy1Sell2:
I have listed it elsewhere on ET. Suffice it to say, that it is profitable utilizing less trades than a scaler would use.
Still waiting. How surprising...
Quote from Thunderdog:
Care to furnish us with a link? Seeing as how you engage in very few trades, surely you can spare a few moments to find it. Consider the credibility it would add to your case among those posters in this thread who doubt your one-size-fits-all logic.
__________________
I'm handing you no blarney
Quote from Thunderdog:
Still waiting. How surprising...
Quote from smilingsynic:
B1S2 and I disagree on many topics, including drawdown, and some of his positions I would describe as a bit dogmatic, but he is a nice enough guy.
According to him, his return last year was north of 80% (90 something, I think). Not that it is my business, nor anyone else's.
Quote from smilingsynic:
According to him, his return last year was north of 80% (90 something, I think). Not that it is my business, nor anyone else's.
I actually don't see where my returns are germane to the discussion here. They would have to be compared to someone taking the exact same signals/trades and scaling out as opposed to my not scaling out. This is where the discussion is aimed at. Not a one upmanship contest between myself and someone daytrading all day every day etc etc. My yearly return is irrelevant here as we are discussing a very simple math equation--. Thanks though SS!
Quote from Thunderdog:
Still waiting. How surprising...
Quote from taowave:
At this point I would settle for one simulation clearly demonstrating that full liquidation is superior to scaling..
With that said,I ask the OP if he places any value on risk adjusted returns(volatility adjusted),and has indeed looked at them vs absolute return.
I think NOT
Quote from Buy1Sell2:
I actually don't see where my returns are germane to the discussion here. They would have to be compared to someone taking the exact same signals/trades and scaling out as opposed to my not scaling out. This is where the discussion is aimed at. Not a one upmanship contest between myself and someone daytrading all day every day etc etc. My yearly return is irrelevant here as we are discussing a very simple math equation--. Thanks though SS!
Quote from smilingsynic:
B1S2 and I disagree on many topics, including drawdown, and some of his positions I would describe as a bit dogmatic, but he is a nice enough guy.
According to him, his return last year was north of 80% (90 something, I think). Not that it is my business, nor anyone else's.
__________________
I'm handing you no blarney
Quote from taowave:
At this point I would settle for one simulation clearly demonstrating that full liquidation is superior to scaling..
With that said,I ask the OP if he places any value on risk adjusted returns(volatility adjusted),and has indeed looked at them vs absolute return.
I think NOT
__________________
I'm handing you no blarney
Quote from Buy1Sell2:
No Scale In and No Scale Out works on all time frames. Daytrading is a waste of time because there are other things that can be done with the time to add quality to life instead of sittinig in front of a screen. Markets that will not allow all in or all out market orders without significant detriment to your account should not be traded (at least not with size that would hurt--ask Bear Stearns).
I can say this, nobody will win this as theoretically B1S2 is totally correct, but many short term traders will not be able to trade that way.
The reason that people won't be able to achieve this is because their strategies are hooked on building a lot of primary target hits at which point they would close position once it retraces back to where they entered. I bet my sweet ass that if you were to look at their trades you would find a hell of a lot of primary target hit trades where they scaled out & closed remaining position once price retraces back to entry point. That's where their strength & weakness is.
Their win rate of hitting primary target is most likely quite high, secondary target around 50% or even below that, as if it was higher than 50% there would be no reason at all to scale out, doesn't make sense.
__________________
Romik
Quote from Buy1Sell2:
I actually don't see where my returns are germane to the discussion here. They would have to be compared to someone taking the exact same signals/trades and scaling out as opposed to my not scaling out. This is where the discussion is aimed at. Not a one upmanship contest between myself and someone daytrading all day every day etc etc. My yearly return is irrelevant here as we are discussing a very simple math equation--. Thanks though SS!
It's really just a simple math premise that I talk about here. The following is an example of the equation. Notice how the trader who scales may actually be able to boast that his win percentage is 66.67% as opposed to the non-scaler who has a 50% win percentage but makes more money. Simple math folks, but many want to throw irrelevant information into it--
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
Quote from Buy1Sell2:
It's really just a simple math premise that I talk about here. The following is an example of the equation. Notice how the trader who scales may actually be able to boast that his win percentage is 66.67% as opposed to the non-scaler who has a 50% win percentage but nakes more money. Simple math folks, but many want to throw irrelevant information into it--
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from Buy1Sell2:
It's really just a simple math premise that I talk about here. The following is an example of the equation. Notice how the trader who scales may actually be able to boast that his win percentage is 66.67% as opposed to the non-scaler who has a 50% win percentage but makes more money. Simple math folks, but many want to throw irrelevant information into it--
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
Quote from EdgeHunter:
No, that is incorrect... see prior posts...
Quote from Buy1Sell2:
It's really just a simple math premise that I talk about here. The following is an example of the equation. Notice how the trader who scales may actually be able to boast that his win percentage is 66.67% as opposed to the non-scaler who has a 50% win percentage but makes more money. Simple math folks, but many want to throw irrelevant information into it--
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
__________________
I'm handing you no blarney
Quote from romik:
I can say this, nobody will win this as theoretically B1S2 is totally correct, but many short term traders will not be able to trade that way.
Quote from fearless9:
You are digging a deeper hole for yourself B1S2, I would suggest that you cease digging.
regards
f9
Quote from Buy1Sell2:
I haven't dug any hole f9. The math is correct. Thank you though for trying and also for not being a scaler!
Quote from Thunderdog:
Beware the carefully chosen example. A bespoke tailor would be proud. By "simulation," I think that taowave meant a real-time example, not a fabricated, self-serving one.
Forgive me, but I think that density may be impeding your absorption capability.
Over and out.
Quote from smilingsynic:
For those who scalp stocks for a living, scaling out might make the most sense. But for the rest of us, including intraday and longer-term futures traders, and longer-term stock traders, profit objectives make little sense, mathematically.
Quote from Buy1Sell2:
I have examined prior posts already. This math is exactly correct.
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from fearless9:
The problem lies not in the maths but in the originating logic.
Spare a thought as to the reason why some people scale.
regards
f9
Quote from EdgeHunter:
No its incorrect...
Sorry, you did not read prior posts...
Math itself is not absolute... one cannot derive a definitive solution from math... alone... all variables cannot be known... within any particular dynamic...
Newton, like you, was ALSO incorrect that math could be used precisely... or absolutely... the certainty of the 1900's was squashed with the math of Quantum Physics and the foundations of Math itself was found to be shaky and uncertain with Godel's theorem...
Newton, believed, like you, that simplicity ruled the universe and the day...
He was dead wrong... you are dead wrong...
One can derive a flexible solution... but not a definitive one ... it can never be absolute...
therefore your 'absolute' point of view is flawed...
This thread should be closed... you should get a better education...
Have a nice day...
Quote from Buy1Sell2:
and to be able to be "right" more often.
Quote from Buy1Sell2:
Goodness Gracious!
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from fearless9:
So far so good.
Now please read your own words (quoted above) and then return to your example and see if you can spot the faulty logic.
regards
f9
Quote from Thunderdog:
Beware the carefully chosen example. A bespoke tailor would be proud. By "simulation," I think that taowave meant a real-time example, not a fabricated, self-serving one.
Forgive me, but I think that density may be impeding your absorption capability.
Over and out.
Quote from EdgeHunter:
Truly outstanding intelligent reply...
Quote from Buy1Sell2:
The post really didn't warrant a reply. The undeniable math has been laid out and it is inarguable. You sort of leveled a personal attack which I don't respond to.
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from taowave:
To simplify,lets trade a trend following system and a reversal type system.Keep it simple.Run an optimisation and tell me if one was better served with 100%(or close) liquidation or some form of scaling out with 2 scale out points.Obviously the odds are against your claim,but if > 85% scale out at the first profit target comes out on top,you are the chosen one.I would suggest you optimise the scale out target as well(1 ATR,2ATR etc....)
Quote from EdgeHunter:
Your whole thread is a personal attack on others that scaling out is "inferior" behavior.
So i think the Mr. Kettle is calling the Pot black...
Your math is incorrect... it is very arguable... and was so done...
your concepts are simplistic... and highly flawed...
and your oversensitivity is very selective... and amusing
Have a Great Day...
Quote from Buy1Sell2:
What I attack is scaling out/in, not the individuals who employ it. The math is undeniable. The concepts are simple--I agree. This is the way to trade--simply. Thanks for the contribution!
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from Buy1Sell2:
What I attack is scaling out/in, not the individuals who employ it. The math is undeniable. The concepts are simple--I agree. This is the way to trade--simply. Thanks for the contribution!
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from romik:
I can say this, nobody will win this as theoretically B1S2 is totally correct, but many short term traders will not be able to trade that way.
The reason that people won't be able to achieve this is because their strategies are hooked on building a lot of primary target hits at which point they would close position once it retraces back to where they entered. I bet my sweet ass that if you were to look at their trades you would find a hell of a lot of primary target hit trades where they scaled out & closed remaining position once price retraces back to entry point. That's where their strength & weakness is.
Their win rate of hitting primary target is most likely quite high, secondary target around 50% or even below that, as if it was higher than 50% there would be no reason at all to scale out, doesn't make sense.
__________________
Romik
Quote from Buy1Sell2:
I have, The scaler "thinks" that they have been right more.
Quote from fearless9:
Precisely, so let us run your model again, this time from a scalers pov.
Four ES Contracts 50% win ratio versus Four ES Contracts 90% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 contracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
18 winners for 9 X(2 Contracts)=324 pts ($16,200)
18 winners for 4.5 X(2 Contracts)=162 pts ($8,100)
2 Losers for 3 X(4 Contracts) =24 pts (-$1200)
Net profit $23,100
Scaling in this case turns out to be more profitable.
We can all amuse ourselves with models and screenshots for ever and a day, but the day we pull the trigger and enter the market is the day our life changes and reality is king.
From paper tiger to market tiger in a manner of speaking.
regards
f9
__________________
Romik
Quote from romik:
EDIT: Illiquid, I saw your reply, nobody is talking about illiquid markets, apart from you and some other posters using that as some sort of justification of their need to scale out.
Quote from illiquid:
Do you really consider FSLR or GS or AAPL illiquid stocks? These are all the daytraders' favorites.
Lemme put it in terms as abrasive as b1s2: EVERYONE who is a successful intraday equities trader, week in, week out, scales in and out of positions. You CANNOT be a successful (say 6-figures monthly successful) intraday equities trade without knowing when you have to scale in and out of a trade. Period.
__________________
Romik
Quote from EdgeHunter:
Your whole thread is a personal attack on others that scaling out is "inferior" behavior.
Interesting how the discussion on this thread has diverged from the original disagreement with the premise (e.g. scaling out is a better trading strategy) to this new pragmatic notion that you have to scale out to avoid bad fills.
I really don't see how one has to do with the other.
Lets say you want to sell your mega-holdings when the price hits 100, but you can't dump it all at once because you are worried about slippage. So you you sell your shares into the market in blocks, you don't dump it all at once.
What does that have to do with the core issue of selling everything at a certain price (100) vs. selling half at 100 and holding on to the remaining until you hit a different price target (say 102)?
Those are two totally different concepts. Scaling out to avoid slippage isnt scaling out - its just basic order management.
Quote from fearless9:
Precisely, so let us run your model again, this time from a scalers pov.
Four ES Contracts 50% win ratio versus Four ES Contracts 90% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 contracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
18 winners for 9 X(2 Contracts)=324 pts ($16,200)
18 winners for 4.5 X(2 Contracts)=162 pts ($8,100)
2 Losers for 3 X(4 Contracts) =24 pts (-$1200)
Net profit $23,100
Scaling in this case turns out to be more profitable.
We can all amuse ourselves with models and screenshots for ever and a day, but the day we pull the trigger and enter the market is the day our life changes and reality is king.
From paper tiger to market tiger in a manner of speaking.
regards
f9
Quote from romik:
That is exactly why B1S2 is right in his statement.
You just provided 90% win rate not just of scaled out trades, but of trades that went to 9 point gain, now please recalculate same 2nd example of 90% without scaling out
Quote from romik:
Honestly, I have no clue what you are talking about, of course there is a way, since you keep bringing up intraday stock trading I can reply by saying try not keeping all your eggs in 1 basket, that way you would not need to justify scaling as an equal/superior way in relation to all in/out. He is talking about a simple math equation, which is indisputable. All you are trying to say is - Hang on, I can't use all in/out daytrading AAPL because basically I would be screwed on fills as I trade size. That is a justification to why you can't trade without having to scale in/out, not that there isn't a way to achieve it though.
Quote from Buy1Sell2:
False.
You are missing the whole point.I chose a breakout system and a reversal system to be thorough in ones testing.It is not a comparison of one vs the other.
Had you done a thorough testing of your "discovery",you would see that reversal sytsems do have much different characteristics than breakout systems..
It is very clear that your basis of analysis is an eyeballing technique,and more power to you if that should happen to work.But in no way is that supplying the math,and your claims are misleading as well as not true.
Scaling out does not work for you and that is not up for debate.To say scaling out is inferior behavior is truly an absurd statement,especially with what you present....
Substantiate your claims with some sort of valid backtest/simulation.That does not seem to be an unreasonable request,assuming you have actually done the work...
Quote from Buy1Sell2:
Tao, here's the rub. This is not about comparing systems ie trend versus reversal. It has nothing to do with that whatsoever. It has to do with trades inside of the same system. I have already posted the math for that. It's a very simple and accurate premise/equation. Thanks for the post!
Quote from Buy1Sell2:
It's really just a simple math premise that I talk about here. The following is an example of the equation. Notice how the trader who scales may actually be able to boast that his win percentage is 66.67% as opposed to the non-scaler who has a 50% win percentage but makes more money. Simple math folks, but many want to throw irrelevant information into it--
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
Quote from Moneyball:
How did you pick these arbitrary numbers?
Quote from Moneyball:
You say you're not dealing with hypotheticals, but that's exactly what you're doing. How did you pick these arbitrary numbers? Math is very simple, try changing some of the variables in your example and you can easily come up with scenarios where scaling in and/or out would've outperformed all in/out. I won't bother with coming up with a hypothetical to support this, but surely you see that, don't you?
The bottom line is, there is no "one size fits all" here- in some situations, it's better to scale, and in others, you're better off not scaling.
Quote from traderNik:
Unfortunately for you, you did, when pushed into a corner, claim that you knew the optimal exit point for every trade before it appeared.
Quote from smilingsynic:
Hindsight is 20/20.
If it had gone to 1150 and then B1S2 got out at 1200, then covering at 1255 would have appeared unwise.
Shoulda, woulda, coulda.
Quote from Buy1Sell2:
This was a very profitable trade for me with 140 ES points per contract realized with full position.
Again the discussion is about what works over the long haul, not on one individual trade.
Quote from taowave:
You are missing the whole point.I chose a breakout system and a reversal system to be thorough in ones testing.It is not a comparison of one vs the other.
Quote from volente_00:
Yes but you still gave up 88 points of extra potential profit by not scaling out.
Quote from Buy1Sell2:
It's really just a simple math premise that I talk about here. The following is an example of the equation. Notice how the trader who scales may actually be able to boast that his win percentage is 66.67% as opposed to the non-scaler who has a 50% win percentage but makes more money. Simple math folks, but many want to throw irrelevant information into it--
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
Quote from romik:
That is exactly why B1S2 is right in his statement.
You just provided 90% win rate not just of scaled out trades, but of trades that went to 9 point gain, now please recalculate same 2nd example of 90% without scaling out
Quote from volente_00:
Your example is flawed because you use 100 + point stops and try to capture 200 + moves. You will get hundreds of 9 point moves over the same time period that only 1 200 point move happens.
Quote from volente_00:
Your example is flawed because you use 100 + point stops and try to capture 200 + moves. You will get hundreds of 9 point moves over the same time period that only 1 200 point move happens.
Quote from romik:
That is exactly why B1S2 is right in his statement.
You just provided 90% win rate not just of scaled out trades, but of trades that went to 9 point gain, now please recalculate same 2nd example of 90% without scaling out
Quote from smilingsynic:
There is a difference between insulting someone and setting forth a proposition.
Note that B1S2 did not say that a person was inferior, but that the approach that a person may use was inferior.
If someone could point out in this thread where B1S2's math was flawed, or his assumptions unwarranted, I would be appreciative; but I understand if no one would for lack of time.
Quote from romik:
Ishmael, today people like Volente could have quite possibly banked numerous primary target wins, they would never agree with your statement. They are slaves to the whole concept of being there and raking in win after win, no matter how big or small the gain is, it's like a tournament to them, been there & done that.
EDIT: Illiquid, I saw your reply, nobody is talking about illiquid markets, apart from you and some other posters using that as some sort of justification of their need to scale out.
Quote from Buy1Sell2:
No. If I would have decided to get out at the point you are mentioning, I would have exited the full position and not scaled out and that would have reaped a larger reward than your suggestion of scaling. You're missing the crux of the discussion.
Quote from GTS:
Lets say you want to sell your mega-holdings when the price hits 100, but you can't dump it all at once because you are worried about slippage. So you you sell your shares into the market in blocks, you don't dump it all at once.
What does that have to do with the core issue of selling everything at a certain price (100) vs. selling half at 100 and holding on to the remaining until you hit a different price target (say 102)?
Those are two totally different concepts. Scaling out to avoid slippage isnt scaling out - its just basic order management.
B1, do you not agree that if you have 2 exact traders and one person scales out and the other does not, then the one who scales will have a much higher % win rate with lower points per trade won than the non scaler who will have a much lower % win rate with higher points per trade one ?
Quote from volente_00:
Scaling out offers you a higher % win rate which in return over time nets higher returns. I'll take 80 % scaling out over 30 % not scaling out any day of the week.
10 trades
8 winners for 4.5 points
2 losers for 3 points
3 winners for 9 points "FULL POSITION"
7 losers for 3 points
Who is more profitable ?
Quote from volente_00:
Not to sound arrogant, but if you can trade ES well, then what B1 made on 1 swing trade can be made in just one volatile day under the current marker conditions. To a capable day trader, every day under these current conditions offers the opportunity to capture 10 to 30 point minimum. To each his own.
Quote from volente_00:
so you would have scaled out half for 228 points and let yourself get stop out on the other half for the same 140, You would have made $4400 extra per contract on the half you scaled out and overall the trade would have been more profitable.
Quote from Buy1Sell2:
The example you have outlined here is of two different non scaling approaches. Neither example showed any scaling, so it was an exercise to find the optimal target with full position only.
Quote from Buy1Sell2:
No, I would have made more by taking the full position off at the 228 points than by taking half off as you describe here. You are confusing the discussion of scaling with the discusion of proper entry /exit.
Quote from volente_00:
2 contract traded per trader
SCALER
10 trades
8 winners
1 x 4.5 points for half the position
1 x 9 point for the other half
2 losers for 3 points each
NONSCALER
10 trades
3 winners for 2 contracts x 9 points each
7 losers for 2 contracts x 3 points each
4 dollar commission
Quote from volente_00:
Then why did you not do it ?
Your argument works logically but not in practice.
Of course if every scaler knew before hand what the trade would do then yes he would make more money selling the whole position at the optimal exit target but the fact remains is that no one knows exactly what the market what will do so scaling gives you the opportunity to exit half at what you may think will be optimal target and let the trade run versus missing not selling any at the optimal point and letting it come back to your trailing stop and giving up extra profit.
Again, your examples are obviously going to work out in your favor, since that's your argument. Where are you picking these figures from? No one that I know that scales out does so in 2 increments, one at 50% of target and one at 100% of target. Maybe they take some off at 75%, some at 100%, then let some run to 125% and 150% (just as a slightly more reasonable example). Assuming equal lots at each level, tell me, who makes more money, this scaler or someone who unloads it all at 100% of target?
Besides, in your first example, you're assuming that every trade that the scaler got out at 4.5 pt profit would've reached 9 pt. profit before getting stopped out. Do you honestly think that's realistic? If one trade doesn't do that (which is very likely in reality), the results of the two "systems" change drastically.
See, any one can come up with hypotheticals to support either case. In the real world, things work a little differently. The only situation in which going all in/out will always outperform scaling is if you know the exact bottoms and tops, which no one does.
Quote from Moneyball:
Again, your examples are obviously going to work out in your favor, since that's your argument. Where are you picking these figures from? No one that I know that scales out does so in 2 increments, one at 50% of target and one at 100% of target. Maybe they take some off at 75%, some at 100%, then let some run to 125% and 150% (just as a slightly more reasonable example). Assuming equal lots at each level, tell me, who makes more money, this scaler or someone who unloads it all at 100% of target?
Besides, in your first example, you're assuming that every trade that the scaler got out at 4.5 pt profit would've reached 9 pt. profit before getting stopped out. Do you honestly think that's practical? If one trade doesn't do that (which is very likely in reality), the results of the two "systems" change drastically.
See, any one can come up with hypotheticals to support either case. In the real world, things work a little differently. The only situation in which going all in/out will always outperform scaling is if you know the exact bottoms and tops, which no one does.
Quote from Buy1Sell2:
Pick any increments. It really doesn't matter.
Quote from Moneyball:
Maybe they take some off at 75%, some at 100%, then let some run to 125% and 150% (just as a slightly more reasonable example). Assuming equal lots at each level, tell me, who makes more money, this scaler or someone who unloads it all at 100% of target?
Quote from Buy1Sell2:
It depends on how often it runs to 125 or 150. If it runs there often enough, then one of those should really be the 100% target and the optimal target has been calculated wrong from the beginning. Optimal targets for setups can be calculated by anyone using backtesting etc. As you know, I use trailing stops with full position on.
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Quote from Moneyball:
Backtesting? Please, tell me that's not how you set your optimal targets
Quote from volente_00:
but the fact remains is that no one knows exactly what the market what will do so scaling gives you the opportunity to exit half at what you may think will be optimal target and let the trade run versus missing not selling any at the optimal point and letting it come back to your trailing stop and giving up extra profit.
Scaling out winners before the target price only makes sense if one also scales out of losers before the stop.
If one scales out of winners and does not scale out of losers, then one is skewing the original risk/reward ratio, turning a 2/1 into something less.
If I scalped stocks for nickels, dimes, and quarters, I might feel differently, I'll admit, since I know little about scalping stocks.
Quote from Buy1Sell2:
I use trailing stops with no scaling as I have mentioned many times before. And yes, backtesting is certainly one of the factors involved in determining optimal targets. I do trade in the real world, by the by.
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Quote from Buy1Sell2:
Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.
9 pt target 3 pt initial stop loss
1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000
2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500
Money can be made scaling out, but it is inferior behavior.
Quote from jagmot:
The numbers can easily be manipulated. Here is an example
2nd example with 20 trades
10 winners for 9 x (2 contracts) = 180 pts ($9000)
16 winners for 4.5 x (2 contracts) = 144 pts ($7200)
4 losers for 3 x (2 contracts) = 24 pts (-$1200)
5 losers for 3 x (4 contracts) = 60 pts (-$3000)
Net profit is $12000
Since you are scaling out that win rate is 60% vs 50% on the scale out trades. I think that is a fair and reasonable assumption.
Quote from jagmot:
I'm surprised no one has commented on my math error. Didn't realize it until I went for a walk to clear my head and thought about it more.
__________________
Romik
I'm not going to read every post in this thread, but the bottom line is this: size players scale out, pikers do not. It is nearly impossible to pick absolute tops or bottoms, size players use areas of accumulation and dispersion, not trying to hit exact figures. Also to consider is the timeframe that one is trading in, typical length of trade, and overall methodology. To each their own.
With a name like buy1sell2, its pretty obvious there is nothing to scale out. Come back and repost when u change your name to buy3sell6 and let us know what you find.
Re: "Scaling out" is inferior behavior
Quote from Buy1Sell2:
(borrowed line from George Bush). No sense being a weak hand.
Re: Re: "Scaling out" is inferior behavior
Quote from Joab:
I actually started to agree with your post till you quoted the knucklehead.
I have scaled out 1/2 most of my career but I'm now thinking it may not have been the smartest way to trade.
I'm actually going to experiment with keeping all till my 2nd targets and see if that works better.
I don't have the balls to scale in
__________________
HAVE STOP img src="http://www.enflow.com/p.gif" WILL TRADE
Quote from Buy1Sell2:
In your example, I noticed that the scaler is getting the benefit of 80 percent of setups going as far as 9 points, but the non scaler's trades only go to 9 points 30 percent of time. Certainly the non scaler's trades would move 9 points 80 percent of the time as well.
Quote from smilingsynic:
If no one knows exactly what the market is going to do, then why scale out? Why not sit tight until a trailing stop takes you out, thereby affirming change of trend?
Quote from volente_00:
Because by scaling out at what you think may be the optimal exit point, you book a sure profit on the trade and in doing so have a higher win rate than those who don't scale out and let the stop go back to break even or even worse the original max loss. I've already shown how the scaler outer will have a higher win rate with a lower point gain versus the non scaler.
Quote from Buy1Sell2:
The math doesn't care what type of system is used. Scaling will always provide an inferior result over the long haul due to the simple fact that when the full target is hit, the full position is not on to reap the full benefit.
Quote from Moneyball:
This isn't going to get very far if you continue to just respond to very small parts of posts while ignoring the bulk of them..
Quote from Moneyball:
Do you really think you can precisely determine the optimal entry and exit points in advance, using backtesting or any other methods?
Buy1Sell2, ImO intraday & ouataday trading are 2 different animals. Intraday price action in index futures has a lot of knee-jerk where momentum action is often faded in an attempt to perform a shake & squeeze. People have to adapt to their trading environments just as they would have to adapt if their living environment was to be changed, what was superior in place A is not so in place B. I agree that from purely theoretical POV you are correct, but considering intraday is noise to daily chart's price action, one has to learn to adapt to this environment. There are plenty of days when a trader that scales out may make more $ than a all in/out trader, in which case how can that be classed as inferior?
__________________
"TRADE WHAT YOU SEE" - Master Osorico
Quote from volente_00:
2 contract traded per trader
SCALER
10 trades
8 winners
1 x 4.5 points for half the position
1 x 9 point for the other half
2 losers for 3 points each
NONSCALER
10 trades
3 winners for 2 contracts x 9 points each
7 losers for 2 contracts x 3 points each
Quote from JSSPMK:
Buy1Sell2, ImO intraday & ouataday trading are 2 different animals. Intraday price action in index futures has a lot of knee-jerk where momentum action is often faded in an attempt to perform a shake & squeeze. People have to adapt to their trading environments just as they would have to adapt if their living environment was to be changed, what was superior in place A is not so in place B. I agree that from purely theoretical POV you are correct, but considering intraday is noise to daily chart's price action, one has to learn to adapt to this environment. There are plenty of days when a trader that scales out may make more $ than a all in/out trader, in which case how can that be classed as inferior?
Quote from hilojack:
I'm not going to read every post in this thread, but the bottom line is this: size players scale out, pikers do not. It is nearly impossible to pick absolute tops or bottoms, size players use areas of accumulation and dispersion, not trying to hit exact figures. Also to consider is the timeframe that one is trading in, typical length of trade, and overall methodology. To each their own.
Quote from Buy1Sell2:
The discussion is not outraday versus