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.
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.
Depends on one's time horizon and trading size. Very often scalpers scale out as a risk management strategy so that a win of x cents won't turn into a loss due to slippage if there is not sufficient liquidity. But, perhaps this cedes to your point that such size would be too large - that's up for debate.
Is "too big" of a trading size relative to one's capital base or the liquidity of the instrument being traded?
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.
Is "too big" of a trading size relative to one's capital base or the liquidity of the instrument being traded?
Capital base. If an instrument is illiquid, we must presume that the trader will trade less rather than more to begin with. Lord help the fool who is overextended in lumber futures.
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.
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.
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.
This is incorrect. There is a right way to trade and scaling out is not part of that. Anyone feeling the need to scale out, was wildly overextended from the beginning. I guess it could be argued then that scaling out is good because it gets the person back to a position where they won't get whacked. However, it is part of a greater failed system/plan from the beginning. The need for scaling out should never be felt --ever. Equity curves will be smoothed by an overall better entry size. period.
