nope I am not necessarily sell one contract at a predetermined spot. I am saying scaling is two separate trades. while you can determine what your maximum favorable excursion is on backtests you never really know whats going to happen going forward. You do not know if future excursions are going to change somewhat. If you have an entry that you know is a good spot you have a choice. Pick your size based on backtested results. Or go larger and scale out holding the position size your system requires. The results will be a far smoother equity curve and more profits. Provided you have a better than than ramdom entry and you set your Rs up right. We know what the expectancy was in the past. We do not know what it is going forward. With better than random entries scaling should be superior or at least the same.
Do you mean then, that it would be 'optimal' to leave the whole position on (2 lots) until the final target and eventually be stopped out (on 1 lot) as a trailing stop should the mkt retrace down ?
I'm saying that it would be optimal to leave the entire position on, as opposed to selling half at some pre-determined target. OK, so if you have just sold half, and it goes back down, your performance on that particular trade relative to holding the position will be better. On the other hand, if it goes on up, the obviously holding the entire position is better. And what may happen is that it may go way up, making holding the entire position considerably better. A couple of cautions though. Trading with a pre-determined target is a great way to sell out of a winning position thereby cutting your gains short. So I'm not proposing to trade with a pre-determined target. I'm proposing to hold the position until something takes place to warrant closing the position. Further, this technique of holding the entire position works better for swing trades than day trades. That's one of the problems with daytrading in general. That said, getting out at a target even intraday to take part of your profit is going to be less effective in my opinion than holding the position until you have a reason to get out. I'm basing this on my personal trading. OldTrader
OldTrader, Thanks for your post; again your post is another re-affirmation that the exits are clearly more important than exits (nothing new here..). The issue - as you stated - is to find each time the reason why the trader should close his entire position instead of just scaling out... developing and being able to create such a scenario is not an easy task and it probably depends not only according to intraday or swing time frame but also on the type of the markets traded. Bernard
The arguments: - follow it don't target; and - all out; ignore the position sizing implications of the standard deviations of wins and losses. If anyone reading this thread wants to look at it seriously look up books by Stridsmann. Its important to remember that Tharp is a psychologist, self-promoter, and course marketer not a mathematician.
If he'd called it Tharp Expectancy then he would have had a law suit ... against him. It wasn't his idea but he wrote about it like it was ... self-promotion is a talent.