Keey losses small in relationship to winners. More specifically, keep losses small and ride your winners to their profit targets. With that said, what do you do when you reach your profit target? * Dump it all (no scaling out) * Dump most of it and let some ride due to the fact that the market condition has changed after entry and there's now new info to support keeping the position open a little longer (scaling out). Simply, when we enter a trade via what ever price action reasons... Don't make the assumption that the market will not change. Thus, scaling out should be use as a way to exploit via adapting the exit strategy during an open trade due to the fact that market conditions has changed. Just the same, someone that scales out should also know when not to scale out I've backtested both several years ago... Scaling out via the situation I've described above is much more profitable for my trading style. Therefore, until my actual trading results is inferior to my backtesting results of not scaling out... I'll keep scaling out when market conditions are suitable for such. Thus, sometimes I don't scale out and dump it all at the designated profit target due to market conditions that no longer merits keeping the position open. Mark
I don't see how anyone can argue with the statement that scaling out is inferior, its a mathemtically certainty. I understand that it feels good to take some profit off the table but that doesnt make it right. At best its an emotional crutch. There is no good reason to scale out, if you think the position is going further then stay all-in, if you think its about to turn against you, then exit completely. That being said I do scale out myself, but I appreciate that it is sub-optimal and driven by emotions and not logic.
Mark , in your example , you let the first trade run to it's maturity. Then you put on a second trade with new info and parameters. That is not scaling out. I assume then that you let the second trade run to it's maturity as well? I have no problem with a second trade being put on and run to maturity as long as the first trade is also allowed to run to it's maturity. What I do have issue with is when somone backtests and decides that a 5 pt stop loss and a 15 point profit target hits 60 percent of the time, so that is what they are going to trade, and then pulls the plug at 13 or 14 points.
Call T1 the initial price target and T2 the revised price target based on the new information. Consider the 3 scenarios: 1.Sell all at T1 2.Sell all at T2 3.Sell half at T1 and half at T2 One of the first two will always result in greater profit then the third choice (scaling out) Your job is to determine based on your trading style if you should be doing 1 or 2, doing 3 just doesnt make sense.
I didn't say I ADD via putting on a second trade. I said if market conditions change after my entry and gives me new info... I'll dump a portion of my position at the original profit target as if the market has not changed and keep some remainders to exploit the new market info. This is scaling out and I've backtested such for my trading style. I'm much more profitable via this type of scaling out and that reason alone is a good reason to continue doing such when it merits for such. However, sometimes in the same situation... I do ADD to the position. This is not scaling out. Yep, the times when I ADD to an Open position...I try to let it run to its maturity (profit target). However, in your example... ...5 pt stop loss and a 15 point profit target hits 60 percent of the time, so that is what they are going to trade, and then pulls the plug at 13 or 14 points... I agree with you because I see problems with that type of scaling out via what I understand what your trying to suggest about situations like that. With that said, I see two different types of Scaling Out situations. * One is planned prior to entry. * One is not planned prior to entry and occurs as a result of being scared out of the trade for what ever reasons. I think some in this thread are talking about one particular situation while others are talking about the other particular situation. My point, you can't really call it an inferior trading style until you know the reason for scaling out. For example, lets say you get a Long signal in ES at 1438.00 and you have a profit target at anything above 1450.00 However, lets say you get another trade signal to go Short after price hit 1447.00 Reality is this, had you not been Long, you would be opening a Short position around 1447.00 Now you need to convince yourself why you would ignore your Short signal and keep your Long position in hope of riding it to its maturity??? * Do you dump it all because you don't want to ignore your strategy signals? * Do you scale out most of the position and keep some to see if it reaches its maturity??? * Do you reverse your Long position into a Short position even though you didn't let the Long attempt the 1450.00 price level??? My point, there are different reasons why to scale out and different reasons why not to scale out. Backtest as many of these different situations to see which is more suitable/profitable even though it may not be sutiable/profitable for someone else that's using a different strategy and/or different trading style. Simply, learn when to exploit both and you'll be a better trader because there will be market conditions where one is superior than the other and vice versa. Mark
You're making the assumption someone only has one strategy that trades one direction only even though you did not mention Long or Short. In that case, I strongly agree with you. Mark
Your second trade was a second trade with different parameters using new info/analysis. I suspect that you let that second trade run to maturity. Initially you allowed the first analysis run to it's target and didn't pull the plug early--Way to be!
Now if you really consider it the same trade and there is a good chance of increased gain, then none should be sold.
By the way, there are a few old journals here at ET where traders posted their actual P/L statement that showed their trading results. It was interesting to see the results of those traders that stayed in very profitable trades because the trade hadn't reached its maturity (profit target). In comparison, to another journal with actual P/L statements where someone scaled out on some occasions to exploit a changed market condition. Learn when to exploit both and you'll be a better trader because there will be market conditions where one is superior than the other and vice versa. Mark