"Scaling out" is inferior behavior

Man speaks the truth.

 

I agree that scaling out just does not seem to work for me.

I think you need a reason to get in a trade and get out of a trade.

The problem with scaling out and/or raising your stop loss is that you then bring in your stop to a point where the market usually hits it on a re-test of recent lows.

What I still would like to have is the ability to hedge trades to prevent getting killed by those that hunt my stop.

 

ahh, now someone is using their noodle...

 

I wonder what the cost of that hedge would be as compared to a simple, no-nonsense protective stop. I'd love for someone to present us with a numerical, real world example illustrating the cost/benefit of such hedge as compared to a reasonably well-placed protective stop in the context of the trading strategy in question. Anyone?

 

I scaled out of over half my commodity exposure last week, then bought back this week. I lost a lot less during the pullback last week and on Monday, and then took advantage to rebuy on Tuesday and in some cases (e.g. Cocoa) double up.

This resulted in lower losses and risk during the pullback, and superior profits after rebuying. My drawdown was a lot less and subsequent returns this week were higher as a result. Scaling out at a point of high risk, then rebuying at lower risk, higher return levels, proved far superior to just holding on.

 

You have basically made my point for me here.

 

If you don't know how to trade, all exit strategies are "inferior".

If you know how to trade, it does'nt matter what you use.

my 0.02

 

I agree. Your argument is a variation of the trade versus buy (or sell) and hold debate. I think that traders who oppose scaling out are cousins of the buyers-and-holders.

 

Taking all off at high risk and rebuying all at lower risk is the better plan than scaling out. This discussion is not about buying and holding. It is about whether scaling out on any time frame including 1 minute charts is a superior play and it is very clearly not. Cutten illustrated the point in full very well

 

Getting out all at once suggests the same certitude as holding on to everything, hence the buy-and-hold comparison. The question is, how certain can you really be when it comes to the markets? And if you generally cannot be certain, then why the all-or-nothing tactics? It's incongruent in the circumstances, and it leaves that much more to chance because you get to take fewer pokes in the fog. Scaling out allows you to be more systematic in an environment of uncertainty.