"Scaling out" is inferior behavior

Lets make this very simple....

Pick a set of rules,post them,and lets see if yout theory of scaling holds up.I for one do not believe you have backtested and performed walked foward analysis.

This is a very simple thing to test.....

 

If scaling out is inferior, then your method of scaling in is inferior because if you have the confidence to know 100% when to sell completely then surely you have the same about when to get in. By scaling in you are hurting your profits by adding at a higher price on a long or a lower price on a short.

 

It doesn't matter what the rules are. The system that does not scale out will always outperform the one that does. This is the point that I am making--keep it simple.

 

I agree.

 

Not if your system has smaller targets.

 

If the same targets are used on both sides of the equation (which they should be), then it doesn't matter what size the targets are. The system that does not scale out will always outperform the scale out system over the long haul.

 

Smaller target system 100 trades 50 percent win ratio 2 pt stop 4 point target 2 contracts

Scale out method: one contract at 2 points one contract at 4 points:

50 winners at 2 point per contract = 100 points
50 winners at 4 points per contract = 200 points
50 losers at 2 points per contract = -200 points
Net is 100 points to the good


No scale out method:both contracts at 4 points

50 winners at 4 points per contract = 400 points
50 losers at 2 points per contract = -200 points
Net is 200 points to the good

No scale out method is better.

Now before you say that you would move your stop to breakeven when you scale out, remember that both sides will be able to trail their stop in the same fashion.

 

It is the probability.


The winning % will not stay constant.

If you are a 30% winner using 10 point targets and 50% using 6 point targets then you will be better off selling half at 6 points and going to break even. If you don't imply this on the 10 point target then you will either make 0 or -10 or 10 points on the trade with 70% of the time being 0 or -10.

 

so the why do you advise scaling in but not scaling out ?

 

This is not a discussion of whether or not to use the 30% system or the 50% system. It is about what happens after you decide on the system that you will trade. If you were to decide on the 50% system, you would be better off taking the whole trade off at either your target or your trailing stop, not scaling out. Everyone is free to find their own system, but once that system is defined, it does not make sense to scale out over the long haul.