Scaling out violates rule number 1, which is to let winners run and cut losses short. So, yes an absolute pronouncement on this subject is fully warranted and well thought out.
I don't know about that. I think this is a really hard question that may have a mathematically correct answer, but even if there is no closed form solution, experienced pros find the right way, or a darn good approximation to it. If a successful trader is telling you what they do, it is worth listening to that recepie because they have probably intuitively worked out the mathematics without knowing it explicitly as that. Think of a robot trying to learn how to catch a ball thrown to it. We have Newtons law of gravitation, we have supercomputers, etc. And yet, get a kid out on a field a few times, throw a ball on any arc to him and he gets it without much thought. Robots are terrible at this sort of thing... nitro
My 2 cents. There is no way to predict how far a "profit will run" or how far a loss will go, no crystal balls yet. So, with that in mind, we don't know if we will be able to "buy on pullbacks" after selling everything. And, there is no way to determine the absolute P&L from scaling out. Bottom line is all that really counts, interesting discussion however. Don
Exactly and that's the thesis of my statements in this thread. Profitable traders that don't scale out find a way and profitable traders that do scale out find a way. Many years ago I traded with some traders in an office environment for a few years and we were all using the same methodology except some were trading stocks and others were trading futures. Also, some scaled out (not all the time) and others did not scale out did such all the time. The profitable scaled out traders were more profitable than those that didn't scale out. Why??? It has to do with our behaviors that involves scaling out and not scaling out. This is something math cannot explain (psychological stuff). Thus, in reality, we are talking about behaviors of traders and to ignore such is problematic in itself. In my personal experience with traders in person and online... Most traders that scale all out are not maximizing their profits (letting winners run) for many different reasons. Also, when I say most are not maximizing I meant to say is that they have more doubts after exiting a trade that continues going their direction without them on board or they've suffer losses on a trade that was once profitable but failed to give them a reversal signal or they intentionally ignored a reversal signal. Therefore, only the few have the ability to maximize their profits on a consistent basis via scaling all out. Those few are putting up similar profitable results as those that are profitable and scaling out. These are facts and behaviors I cannot ignore... Based upon my personal experiences. Just the same, in reality, most traders that do scale out do not do such all the time especially when reversal signals appear, initial stop/loss protection being hit, trailing stop being hit et cetera. Simply, in reality, most traders I've met when they do scale out of a position its in a position that has exceeded their profit goal and they now are trying to get greedy in trying to capture something they didn't expect to get. Being greedy is a bad thing too and can lead to other trading discipline problems There are others that scale out, in reality, due to problems with the risk management of the trade and they want to bring the risk back within a tolerable parameter. Simply, I would rather deal with the real behaviors of trading and many journals in the Journal section are a testament of such instead of spending too much time on what makes a nice mathematical debate on paper. I know, the thread starter once told me in this thread that this is a completely different discussion and should be taken elsewhere. Mark
In my prior post when I use words like scale all out. I meant to say exit all out without scaling out of a position via increments. Also, it would be interesting to poll the Trader P/L Statement 2007 thread to see the profit levels of those that scale out versus those that exit all at once. http://www.elitetrader.com/vb/showthread.php?threadid=83837 Mark
Another cent and a half....Who the heck does everything all the time. Everyday we "cover all" and "replace" and we "scale" and replace" (especially when trading pairs or doing openings. Why would there have to be an "either / or" scenario? In pairs, we do "layering" in and out. We try to keep one layer on for continued trending in right direction, but we also, trade a couple of layers with proper increments. You can wait to make a dollar, or make 50 cents 5 times...or do both, right? That's a simple example of doing both. Don Don
who cares if one trades sub-optimally. If you make big money and feel good about it then everything is all right - alternatively if you do not feel right about it then give more to charity. Seriously, and as indicated several times in this thread, it is all about <i>odds</i> and how you <i>feel</i> about a particular position. Odds are constantly changing with new information arriving - therefore your position must adjust (up or down). Some information may seemingly not be related to your position but still - if you feel like you should take some chips off the table - subconsciousness (or call it gut feeling) may persuade you to rebalance. At the end of the day the subconsciousness is what you nurtured in years of your trading - and is called experience. If you have more of it you have better chances to succeed because you can minimize many trading devils like FEAR, Kahneman-Tversky, impatience etc without knowing the ultimate optimal trading strategy.
I don't agree with this attitude at all. When you can get a mathematically correct computation that does the right thing, you want to use it, even when you are trading discretionary. But the point really hits home when you are trying to implement an automated trading strategy, then it becomes critical that these questions be asked and that what you are doing is mathematically sound, or at least trading sound. nitro