In your example you fail to take account of the probability of reaching 4.5 points but not reaching 9. The scale out method will bank profit in this scenario (0.75 pts/lot) while the classic method will lose money.
It makes sense if you expect the market conditions to change; it makes sense if you define the market as a fluid set of possibilities; it makes sense if you consider the market complex, as opposed to simple as you keep reminding us. How do you even begin to adjust your targets, if you find them deficient? By the time you make a shift, the market will adjust again. My point is, the math does lie (as you present it), sorry.
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss 1st example without scaling out 10 winners 2X(4 Contracts) = $80 pts ($4000) 10 losers 2X(4Contracts) = $80 pts (-$4000) Net profit 0 before commissions 2nd example with scaling out half at 1 pt 5 winners 2X(4 Contracts) =40 pts ($2000) 5 winners 1X(4 Contracts) =20 pts($1000) 10 losers 2X(4 Contracts) = -80 pts (-$4000) Net loss before commissions=-$1000
2nd example can't lose on 4 contracts if they scaled out and only have 2 remaining. The two traders can not have the same loss amount total if one scales out.
Because even though the total dollar stop loss would be different when you scale out, a person employing the breakeven strategy would be moving their stop up to breakeven as well when they didn't scale out while giving themselves the opportunity for more profit. Once the trade moves in your direction, I have no problem using a trailing stop, but the profit target remains intact and shoule be allowed to be reached. You are making ny case by leaps and bounds and it started with you saying that the scale out trader needs a higher winning percentage to be as profitable as the non scaler.
When you calculate odds on a trade there's more than just the % chance of it hitting your profit target. What's the % time there's a signifigant % move after your target? It makes sense (depending on your system) to leave a small portion of the trade on to capture a very large move that happens a small % of the time. Furthermore, you consitently deny that this has anything to do with profit targets, but in your rebuttal you keep say "better homework would define a better maturity area"??? I'm a little dense sometimes, but isn't that the same thing? TNG
Also, can't lose when the non scaler moves his stop up tp breakeven as well. Thanks Vol very much for your input today. It has helped enormously. And I mean this in a very nice way.
Your numbers are flawed. You can not have the same loss. The case of the scale out trader is that his loss will be half as much as the other trader because he only has half the position left to lose on. True he might not gain as much profit but his loss amount will be far less to offset that. The case is that if you use scaling out you end up being a higher % trader because you have a higher probability to profit on every trade due to reduced risk.
What's the percentage that it goes beyong maturity. If it's high , you would want to raise your maturity target. With regard to the profit targets, what I am saying is that it doesn't matter what your profit target is, it could be a bad one with 5 % expectancy, but you'd still do better(lose less) over time by not scaling out.