Thanks for the question Gary. I am going to give a response that may anger some, but is the correct response. An individual who is underfunded and /or overleveraged needs to drop down to markets like mini beans, corn or oats that have low face values or ETF's etc at 1to1 and trade for position until they get their grubstake built. If they are overleveraged in those markets , then they really need not trade until they can build their account by saving etc.
Yes, you and I know this. I built my account by trading options. But we also know that this is not going to happen. I would say more people are going to trade with max leverage than not. So with these guys in mind would scaling out or even trailing stops be a viable alternative?
Trailing stops, yes. Scaling out no. They really should not be in over their heads though, that's what causes people to scale out. No sense learning wrong and developing bad habits.
scaling out is just not a viable trading idea. again, you have to get out of your trade because your original reason for it has disappeared. why stay in after that?
Ok, Just asking because I imagine quite a few people that could be reading this might be the ones I am talking about. I think most here know that I don't scale in or out. Nor do I trail my stops. I don't agree or disagree with any of these I just don't do it. Case in point. My options trade that I have been in since july was about .40 cents from my target this morning. I was hoping that it would hit today but just didn't make it. I have just about decided that since I have made very nice profit on it I might let it run anway or I could have gotten scared out of the position by this afternoons sell off. I am going to let it keep going until I have a clear signal to get out.
Hi Gary, but do you remember that CAL trade where my PT was different to yours, yours got hit and I decided to wait and instead of 28% profit ended up with something like 8%? Not certain at the moment. Both trailing and scale out would have provided a better ROI on that trade with my PT.
Yeah, I guess I forgot that one but yes it did happen. Now I don't know how many times it would happen like that though. Maybe I got lucky I don't know. But yes trailing or scaling would have been better on that one. Personally I would favor trailing but either one would have been better. P.S. I might be saying the same about my Q's trade if the market keeps going down
B1S2 I think you are forgetting to include probabilities in your calculations. Take a look at this: scaling contracts odds payout ev 1 0.9 10 9 %90 going to 10 1 0.01 11 0.11 %1 going to 11 9.11 all out contracts odds payout ev 0 0.9 10 0 %90 going to 10 4 0.01 11 0.44 %1 going to 11 0.44 This is scaling out one contract at 10, letting the other run to 11. The second is letting the entire trade run to 11. I've used a %1 chance as an extreme measure to show the results. There is a point where your ev is higher letting the whole trade run, but it's a function of probabililty x payout. TNG EDIT: formatting sucks, looked good when i typed it in though...
I get two signals only: enter and exit. If I get multiple enter signals, I scale in. Once I get an exit signal, I'm all out -- nothing halfassed. When you come to a stop sign, you're supposed to stop, not do a slow roll through it. There's a very good reason for the old adage: Cut your losses short.