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.
My issue arose from the fact that, after betting on "x" to occur and having been proved right with a profitable open trade, I'd find myself basking in being "right" rather than looking to close the trade. In other words, learning to properly identify when "x" had already been discounted by the market. When you go discretionary, you have to go all the way, so really we are talking past each other. I don't trade a system, I just trade what I think people will do next. Those who trade on technicals, indicators, patterns, etc, or those who believe the markets are random/mostly random would have no choice but to take some backtested average target and settle for that -- that much I understand. Certain kinds of traders will be more likely to tell others "how it is" or the "correct" way, but since you have no idea how I trade, I would think it's somewhat presumptuous to tell me what I've done correctly or incorrectly. I mean, I feel that systematic thinking in the fx markets is what defines "inferior behavior" -- it's just that I wouldn't start a thread to point that out.
Hey T-Dog, It's a great question. 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. The very nature of the question speaks to what B1S2 is talking about (actually looking at). Everyone who is championing the don't scale-out camp has seen many, many, many of those moves get away from them ... The principles for intra-day as well as day trading Best Regards, Jimmy
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.
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.
If everyone in the markets exited/flipped their positions at the same time, then yes, it would be very easy to mark when those "bingo" moments are. But it isn't that easy all the time.
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?
Good idea on defining terms. So you have a position, you have picked an intermediate point (by whatever means you use) and presumably there is a final target (again picked by whatever method your strategy dictates) where you sell the remainder of your position. For any given single trade, you can sell all at the intermediate point, sell all at the final target, or sell some at the intermediate and hold the rest for the final target (scale out). For any given single trade it may turn out that holding all for the final target causes the trade to end up being a total loser rather than at least capturing some profits by scaling out at the intermediate point. If you are using that reason to justify scaling out then you are doing yourself a disservice because you are focusing on each single trade rather than the big picture, overall profitability. Over the course of many trades it is a given that you will do better either (1) selling everything at the intermediate point that you have defined or (2) selling everything at your final target without scaling out. 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). 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. 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 arenât 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 â the numbers donât lie. Lastly, sub-optimal isnât 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 â a lot of trading is psychology anyway.