Scale out or not?

Discussion in 'Index Futures' started by buzz, Jan 6, 2006.

  1. buzz


    Test 1
    In this example we look for a 40 pip profit. on 2 lots YM..we will have a stop of 10 pips and move stop to B/E after 10 pips is hit and sell half of you position.

    Now if I get stopped out 10 pips I lose $100.

    Or if I get my first target of 10 pips is hit I would sell 1 lots and let the other run. but on this trade it came back to break-even. I made a little $50 on 1 lot.

    Test 2
    Or would this work 2 lots. stop 10 pips as above and move stop to break-even on 10 pips profit, but in this one you dont sell half of you let the 2 lots come back to break-even.that is if you taregt is not hit first..

    The question is when you do get the run and you 40 pips taregt is hit you would only have 1 lot running on test 1 but you would have 2 lots on test 2.

    Test 1...if taregt is hit 40 pips you would make .....................................................=$400

    Test 2...if target is hit 40 pips you would make $50 on 1 lot and $200 on the 2nd lot.= $250

    With test 1 you get little $50 here and there but miss out when the 40 pip taregt is you only got 1 lot running.

    The question, is it better to scale out, or just hold the 2 lots till stopped out or target hit?

    anyone done any kind of test on this..

  2. Buzz:

    There are a couple of things that your should be thinking about and unfortunately your not covering the bases.

    First, you need to put your trade(s) in a context. Is this a "first trade" off the open, or a trade taken in the middle of the morning before lunchtime (NY), or at the end of lunch hour when people are just getting back from lunch, or is it a last hour trade near to the "bond bounce" or during the last 15 min of Globex? All these trades have different expectations based on the time frame and the actions of other traders and institutions.

    For instance, If I am taking a short scalp on the open, I pretty much know that two scenarios exist. One I am going to get (lets say we are trading the Russell) 2 points max and then the market will probably reverse, OR two, the market is going to run, and it will be a trend day so I might get 5-7 points before needing to hold through any significant pain. I know what the scenarios are to start with, AND more importantly, I know what to look for to confirm one or the other.

    SO what about your question. Well knowing that, and assuming that you have an edge (and the confidence to trade it). I want to put on at least three contracts. As the market moves, I am evaluating the position to see whether I can "ID" the type of day. If I come to the conclusion that it is a average up/down day, I want to look for 1-2 points on 2 of the three contracts. I know there will be a retracement. I know what the likely size of the retracement is, and I am waiting with my last piece to see if I am right and then I will get extra profit, or I am wrong and I will take a little ding.

    You see it depends on how good you are, AND it depends on your edge. IF you have a valid edge and you enter well, you can bet on yourself and hold through the pain a little bit. If you don't have an edge, you better take your profits in one swoop and wait for your next signal (such as it is). Why because keeping a piece in the market allows you to stay in a position long enough for your edge to kick in. If you dont have one, you better take profits where you can find them.

    I hope this helps.
  3. Buzz

    I think that there is no EASY answer to this question (It's one I've struggled with a lot to).

    I think EVERY trade is best handled on it's own merit and conditions.

    Try not to put the market in a box but still try and stay as structured as you can.
  4. It depends on what type of trader you are.
    From experience It is far easier for me to take 40 points from 4 10 point trades than it is to catch all 40 at once and sit through the chop and retracements. . Ym likes to move in 20 point increments and often will retrace 10 of these points before continuing the current move. Sometimes I get flat all of the position, sometimes I keep half and move the stop to BE as you speak. Exiting half alllows you to ring the register but still stick around to see if it will run farther. Take today for example, If you were long at 925, and caught the move to 950 but did not sell because you wanted 40 points, then you would have got stopped out on the next fall before the big move up.
  5. I agree that each trade is handled slightly different, I like to get half off pretty quick and the stop moved to entry, after that, as soon as possible. But I don't think you can use the same size stop for every trade or a standard target amount. The support and resistance #'s are always a bit different on each trade. Say your last swing low is 10 ticks away on a Long position I would want to give it a couple more ticks, so say 12, on the next trade or leg up you may be able to move your stop up to 6 ticks if you find decent support, and then let your other contracts run. Getting half off allows you to bank some money, take some pressure off, and then I like to scale the rest off as the market moves in your favor.

    Same goes for the target, many times I would set the same target amount for a trade only to find myself in the middle of nowhere, as far as sup. or res. goes, while the trade went much further or nowhere near that target.

    Setting the stops and targets for each trade has reduced my stop outs, and scaling out has helped my bottom line.

    trade well
  6. Better question would be .

    SCale up or Scale down.

    Scale in and Scale out was what I use to do.
    clearly not money.
  7. lcw


  8. lcw


  9. buzz


    Thanks for that Icw

    Good read..i have been banging my head on this for a long time, as to what is best, full load and scale out or hold all till target, or even scale in to a position.

  10. Try it and see what works best for you.

    I find it much easier for me to go all in, and scale out. I personally find it hard to add to a position once I'm in, but that is just me.

    I am sure others have success scaling in, ya just have to find what suits you.

    trade well
    #10     Jan 10, 2006