Your example is flawed. Price has less chance of reaching the full target. So scaling out may result in a lower % gain per trade. However it will results in a higher win %. If anything, scaling out is a net zero financial benefit but with greater psychological benefits as well as a smoother equity curve which is very beneficial for those of us trading for income.
Not sure I understand 2% wieght by gross. Is this 2% of the total portfolio? How does this wieghting work when you are hedging positions?
Want to show me your source? I understand delta management to replicate the payoff of a call option, but you must define how much weight in your portfolio you’re willing to allocate to any one position in the first place. My position thresholds define that, and as portfolio mix ebbs and flows, maintaining a fixed weight means I am adding/reducing based upon what’s happening globally. But maybe we’re talking semantics. Adding to winners is good, reducing losers is good. But scaling implies something else, imo.
The example is not flawed, but I agree with the rest of the statements you made. Scaling in and out is inferior to all in all out methods in terms of actual gain over the long haul.
It means the net weight of a single name might be less than 2% depending on what I need to do to hedge. The more volatile the position the more hedging it needs.
Scaling in implied you go smaller first, right? That’s the way I interpret it. E.g. you want a 2% allocation and you start with 0.5%.
That's how I see it. We probably disagree on adding to a winning position vs averaging down. I assume that with fundamental analysis if you like a stock you will add if the price drops. (everyone likes a sale). In my case I just take a small loss and wait for another set up. Different strokes; no one is wrong.
Well if you want to buy a stock I assume you think the price will go up right? Why wouldn’t you buy now?
I do. I scale in because I want to limit my risk. If it goes up I'll add, if it goes down I'll take a small loss.