"Scaling out" is inferior behavior

Discussion in 'Strategy Building' started by Buy1Sell2, Oct 18, 2006.

Do you scale out of positions?

  1. I always scale out

    113 vote(s)
    14.1%
  2. I scale out most of the time

    228 vote(s)
    28.5%
  3. Most of the time, I do not scale out

    189 vote(s)
    23.6%
  4. I never scale out

    270 vote(s)
    33.8%
  1. As far as to scale or not to scale ... I think we've pretty much answered the question that both (and many other methods) can prove to be consistently profitable, provided a trader has everything else in place.

    Me personally, I like the scalling in/all out approach, it makes trade entry easy, lets me ride any given trend for its duration, and allows me to exit with a large portion of any profit that the move generated.

    It's a worthy topic of discussion and obviously a key point of trading which many traders actively work with to consistently maintain/increase their overall profitability.

    Regards,

    Jimmy
     
    #51     Oct 19, 2006
  2. Buy1Sell2

    Buy1Sell2

    This is the correct method. Starting with a small probe and scaling in at better prices. Then the position is allowed to run and reap the full benefit. At no time do you scale in to a position that would be large enough to lose more than 2 percent of total liquid net worth.
     
    #52     Oct 19, 2006
  3. Buy1Sell2

    Buy1Sell2

    This is correct as well. Keep in mind, that the individual who needs to scale out had a bad entry with a position they were uncomfortable holding, thus they then have to scale out due to fear etc.
     
    #53     Oct 19, 2006
  4. Jachyra

    Jachyra

    Reading all these posts reminds me of when I was first learning to play craps. After three days of playing as "smart" as possible, one of the dealers finally pulled me aside and asked, "so do you want to learn how to make some real money in this game or do you just want to nickel and dime it forever?"

    What he knew then, and what I know now, is that in odds based games (such as craps and blackjack) you'll never make any money at all if you bet the exact same amount each time. An experienced player is going to do the exact opposite of scaling in (which is impossible with gambling) or scaling out (which would be the equivalent of reducing your bet after a win). The experienced gambler (who would argue that they're not really gambling at all....or at least as little as possible) would "press their bets up," and would continue to do so until the streak is over. Have you ever seen a good blackjack player bet $100, win, and then bet $50 or $100 the very next hand....Not unless they're counting and they knew the deck was raw....no, they press it up (which really means re-investing their profit), and bet $200 the very next hand. If they win that one maybe they increase their next bet to $300 and collect $100. If they win that one, the next bet might be $400 and they collect $200 or $500 and only collect $100. Same with craps, I can't tell you the number of times I've built a $12 bet on a 6 all the way up to $600, only to seven out and have made more in 8 rolls than I would have made if that stupid $12 bet had hit 30 times in a row. Its all about raising the stakes on somebody else's dime (this is of course assuming that you have the ability to mentally consider the money in play house money and not your money like most people would want to do).

    This has been the number one thing that has helped me the most in my trading. The ability to build a position. If I enter a trade with 1 contract, I am pretty upset with myself if at the end of the move I still have 1 contract. No, I want to start with a small position and end a move with a large position...hopefully with a position larger than what I would have originally felt comfortable with. This is the exact opposite of averaging down on a losing position......this is averaging up on a winning position.

    So the next time you're in a profitable trade, instead of thinking about getting out just because you're profitable, maybe consider taking some of that profit you have and re-invest it in your own trade the next time it retraces. Sure, you might get stopped out a little more on relatively small size, but when you finally catch that run you'll just kill it.

    Also, I like to think about my trades as employees. I always think about how you reward employees for doing a good job, and typically don't give them raises for doing a bad job. Well, if I'm in a trade that hasn't done anything that I'm happy with except move against me, then why do I want to reward it with more size. Instead I would rather reward it when it does things that make me happy, like move in my direction, or take out swing highs or whatever it is you're looking for. If a trade does something to make you happy, then reward it by adding on to it, and don't reward it for doing things that make you unhappy or cause you stress.
     
    #54     Oct 19, 2006
  5. Buy1Sell2 says: "Scaling out" is inferior behavior

    vhehn says: there is no "right" way to trade. the best way to trade is to find a strategy that matches your personality. for some people scaling works. simple as that.

    My 2c: There is lots of inferior behavior out there. Nobel Prizes in economics are being given to people who point out inferior behavior and call it "behavioral finance." For example, trading any asset allocation other than the Markowitz Efficient Frontier optimum is inferior behavior ... but lots of people and lots of multi-billion dollar institutions do it. They have found what works best for them, and they don't mind if you or I or Harry Markowitz accuses them of "inferior behavior".

    So I agree with vhehn; find what's optimum for you and don't worry about the opinions of others. They ain't you.
     
    #55     Oct 19, 2006
  6. Buy1Sell2

    Buy1Sell2

    This is correct thinking. You don't physically take the profit, but you add to the position--scaling in. As I indicated, it's just common sense. Thank you Jachyra.
     
    #56     Oct 19, 2006
  7. Buy1Sell2

    Buy1Sell2

    Little does this man realize that he would be tremendously more successful with out the scale outs.
     
    #57     Oct 19, 2006
  8. If only he were as smart as you are. Some folks simply don't recognize the validity of other people's opinions. Isn't that right, B1S2?

    *Sigh*
     
    #58     Oct 19, 2006
  9. Buy1Sell2

    Buy1Sell2

    Actually smart has very little to do with trading. Common sense is more the key. It's better to keep things as simple as possible and run with a profitable trade as long as possible. There are quite a few unnecessary classes, websites, programs and publications all designed to make the newer and inexperienced trader believe that trading is hard.--It isn't.
     
    #59     Oct 19, 2006
  10. Buy1Sell2

    Buy1Sell2

    Exactly what I thought would happen. My point is misconstrued by readers to mean that I am talking about holding through long periods. What am I saying is that no matter what your time period, whether it's a 1 minute chart or a 1 year chart--you do not scale out profits. It's is a deficient notion to choke out profits.

    No one would hold through periods of drawdown greater than 2 percent of total liquid net worth.
     
    #60     Oct 19, 2006