As there has been no sign of any meaningful evidence to refute my proven assertion, the proof phase of this thread is now complete. What has been shown is A) all in all in out performs in a superior fashion to scaling on all time frames. B) Even losing systems (in fact ALL systems) benefit from all in all out style trading. --Proof phase now complete-- Time to move on to some further considerations with regards to this subject and I will begin with the first item in the next post.--Ishmael
The next consideration that must be looked at is the number of times a trader makes decisions. The more decisions that a trader makes, the more chances he will have to be wrong. Traders are more likely to make decisions that are incorrect, thus it is important to keep the number of decisions to a minimum. Each time there is an entry or exit, this represents a decision that is being made by the trader. Scaling requires more entries and more exits and thus creates a greater potential for incorrect entries and exits. It is best to avoid this and the all in/ all out style limits the chances for bad decisions. Good trading everybody!--Ishmael
If anything has been proven in this thread, it is the following 1. Scaling out is an effective trade management strat in many situations, especially those which involve legging in 2. There has been not one shred of empirical proof for the OP's assertion. The only proof of the OP's assertion that scaling out is inferior behaviour is the following statement "Scaling out is inferior behaviour" It would be clear to most people that this doesn't constitute proof. 3. The central tenet of this thread, that the optimal exit point for a trade can be determined before the trade is placed has been unequivocally shown to be a load of hogwash. If there is no proof for the title assertion, there has not even been an attempt to prove this howler. It is heartening to see that the OP has backed off from his claim the the duration of a future price move can be determined through backtesting, a bizarre idea even for these boards. 4. This thread should serve as a warning to beginners who make the mistake of believing that there os a one-size-fits-all approach to trade management. 5. In the end, this thread proves only one thing. The Holy Grail in trading is price action. All decisions should be made with a healthy respect for it. If a trade is initiated and price action shows that the conditions which obtained when the trade was place have changed, the trader must adapt. Often this involves lightening up and moving stops up. We will continue to post the facts while leaving rash generalizations and theory-based presumptions to the theorists.
In order to properly assess the content in this thread and the OP's assertions, it will be very instructive to go back to the first days and to see what kind of comments were being made by the OP at that time. How can we rate this individual's credibility? One way is to go back and see what he has actually stated as his opinion. In the days and weeks to come and as time permits I will go back and search out some of the more relevant posts made by the OP and post links. It shouldn't take too long before a pretty consistent picture emerges. Here is the first http://www.elitetrader.com/vb/showthread.php?s=&postid=1236290#post1236290
It is truly instructional to look back at the first hundred or so posts in thsi thread. All the rational objections to the OP's unfounded assertions were made in 2006. The OP had no way to counter these facts. Here are a couple of posts which deal effectively with just one aspect of the flaws in the OP's assertio. http://www.elitetrader.com/vb/newreply.php?s=&action=newreply&postid=1238772
Even more interesting facts are emerging! The OP is a apparently a failed daytrader, someone who could not figure out daytrading. Over the years we have seen that there is a certain type of individual who maintains the following mindset: "If I can't do it, it means it can't be done at all". Now, of course this is laughable. But it does give us some insight into the OP's mind. We are not dealing with someone with a flexible mind here. We are dealing with someone who would rather stick his head in the ground than face the facts. This type of person will add to a losing position, stubbornly maintaining his belief, until he either goes broke or is stopped out for a huge loss. They do not do well in situations which require them to change their opinions suddenly when faced with new evidence. No wonder the OP claims that scaling out is inferior!! http://www.elitetrader.com/vb/showthread.php?s=&postid=1238907#post1238907
yes, well time and capital will run out on them, this lesson is just many we all learn from the beginning. failure is not exclusive to geniuses. neither is ignorance nor arrogance. especially from those before us who've forgotten they too were naive fools once. knowledge is learned, not inherited.
The second consideration in this phase of the thread is something called "Reverse Position Sizing" Here is a link to a very good article concerning this very concept. For those who don't wish to visit the site, I am posting the article here for you to read. http://www.rightline.net/education/battle-of-exit-strategies.html "Simple concepts usually work best in trading - especially when it comes to Exits. However, keeping it simple doesn't exclude Exit plans with several features - so long as each aspect is designed to accomplish a goal. For example, every Exit Strategy should do three things - minimize losses, maximize profits, and limit the amount of profit you give back. You can minimize losses with an initial "sell-all" stop that protects you if the trade moves in the wrong direction, maximize profits with a "sell-all" trailing stop that allows for normal price fluctuations, and avoid giving back too much profit by tightening the trailing stop when you reach a certain profit target. While this three-pronged approach specifically addresses each objective, one widespread strategy used by many traders does just the opposite. The basic idea is to exit your position in several planned increments as opposed to exiting the entire position at one time. This strategy is sometimes referred to as "Scaling Out." Like the first example it uses multiple features. However, instead of meeting the three objectives of any good Exit plan, it works against them. Here's how. Lets say you open a position with 600 shares. Under the Scale Out plan you might sell 1/3 of them when you reached the break-even point for the trade. Then you would sell another third when you made a specific profit such as $1000. Then you might hold on to the remaining shares until you have a $2000 profit, or keep the position even longer and let the price run way up. Although the Scale Out method is commonly thought to reduce losses and increase profits, it has the unfortunate quality of producing big losses and little profits. This is due to a not-so-obvious characteristic - Reverse Position Sizing. Position Sizing protects you by limiting the amount of shares held when you are the most vulnerable. This reduces the total amount of loss. On the other hand, the Scaling Out exit plan guarantees that you will have the most shares in your position when your risk of loss is highest. This trait will quickly increase your losses. Not only does Scaling Out increase your losses, it insures that you have the fewest shares in your position when your point gains are the highest. Instead of "locking in profits" as it first appears, scaling out locks in larger losses than if you exited your entire position at one time. Bottom Line: Though Scaling Out is popular among traders, the defects in this Exit Strategy cause hidden damage to trading accounts. Intuitively it seems to be a clever thing to do, yet when you take a closer look you can see that it is quite destructive. By the way - don't feel bad if you use the Scale Out method - at least you have an Exit Strategy. That fact alone puts you in the top 20% of all traders. I confess that I believed in this method for a long time because it seemed to make sense. Oh well, live and learn!" Ishmael
There's nothing like a well-chosen example. In this quote, the author talks about putting a position on and taking 1/3 off at the break-even point. B1S2 is using this as 'evidence' (and I use that term extremely loosely) of his mistaken hypothesis, that is that scaling out is always sub-optimal. We don't need to look any further than this to get an idea of the intellectual rigour with which the OP constructs his 'arguments'. Why would anyone take 1/3 off at the breakeven point if the initial reasons for placing the trade still seemed valid?? No one who has objected to the blanket statements by the OP has said that scaling out should start to occur at the break-even point simply because it's the break-even point. What does B1S2 think those who scale out do? Attempt to get filled at b/e in a market that is stampeding in their direction? Citing the quote above is like saying 'Scaling out is always sub-optimal because traders who don't know what they're doing sometimes scale out'. This is a ridiculous example, and carries no weight whatsoever. The more we hear from this member, the more we see that his arguments are based on nothing but opinion, and wrongheaded opinions at that. Scaling out is the optimal strat in various trading situations. Beginners should be aware that blanket statements and rigid thinking should be filtered out. Price action is the best thing upon which to base trade decisions.
The only thing I can figure from the example is that the author was assuming they had scaled into a losing position to build the original. Something that I will never advocate.