In the past, i have generally been scaling into positions and selling all at once. i swing trade with 3-10 day holds generally in both stocks and options (purely directional). I am profitable...up around 50% or so on the year (average around 35%+ per year). My goal is 100% yoy (realatively small account) the problems i have are the following. 1. If there is a correction in the price, your average cost is often much higher than your original entry...hence you lose it pretty quick. 2. I LOVE to ring the cash register. Oneof my weaknessees is not hanging on to positions long enough...which is required to scale into positions...longer holding times. recently, i have done scaling out... 1. I enter a trade with a pretty significant size (say 50-75% of my unleveraged portfolio) with a very tight stop. as the trade proves itself, i sell half, then half of that, then the remainder at my exit point. 2. This allows me to ring the register, take profit, lower risk, and still mentaly meet my entry and exit points without getting out of the entire position prematurely. I like this mentally becuse i have the satisfaction of participating in the entire move...at a low relative risk. who has had success experimenting with scaling in and out...what has been the result of your changes?
Scaling in/scaling out: you can't do very much or any scaling in/scaling out if you are trading at the minimum of 1 or 2 lots. At the other end of the spectrum in day play with large or very large entries and exits, scaling in & scaling out requires a position size strategy worked out in advance. There never appears to be a lot of debate on this topic; I presume its because players regard it as revealing too much about how they deploy their play in the market.
I've been doing this as of late with success on my trades. Its a very psychologically satisfying strategy. You get to profit take and let runs truly run at the same time. You could even call it a form of retroactive scalping. I've been trading natural gas like this the last few days. Great way to take advantage of noise on the market. Of course I wouldn't scale in unless I was absolutely sold on fundamentals.
All of my strategies have some form of scale-ins (or the ability to scale-in if needed) and some have scale-outs. All others just go for a certain percentage return, so once that percentage return is hit the trade is then flattened (usually trades in choppy market conditions play out this way).
I have found scaling out I get less gains then if I wait for either a profit target, a minimum gain or a reversal pattern. All while using a not too tight trailing stop. The drawback of partialling out? Either I scale out on something that was good for only a small move then I get stopped on the trailing partial, or, I scale out on something the ends up running far but I only have a small position left. It does seem that those really great trades perform somewhat the same. So I am trying to see if I can identify at what price point it seems to be a great trade. Then later I will try to see if that price point would be a good place to add maybe just a quarter more of my usual position size. Sort of salt the really nice ones.
I just posted an answer in the averaging down thread. A lot depends on your strategy, it cannot be regarded in isolation like many want you to believe. Most methods, scaling in, scaling out, averaging in etc will lower your PF. The only thing where I see it having benefit if you go for the big haul, trade the longer trend of several months. And since the market has been relatively flat the risks for that are just too high. But this assumes one has to try to pick tops and bottoms and that is not the easiest game in town. Having said this I do think the worst is over - Volatility has been contracting since the start of the Iraq war and now it is slowly starting to increase. (and this is only natural too since all these systems are backtested and "tuned" on historical data" but that is another subject that I touched on somewhere else - albeit only briefly - ). This means that means reverting systems (mainly the flippers, spoofer's, bots) will start to experience the going more and more difficult. And trend trading will start to become more and more possible. Unfortunately I see the move going to the downside and that does not spell a lot of good. Holmes.
Basically, you have a longer timeframe trading and a shorter timeframe trading fused together. If you can make money just by trading your scaling in/out timing, via out-right that's value added.