why scale out

Discussion in 'Risk Management' started by investwthme, Dec 5, 2008.

  1. Ok I've read books and hear people abou8t scalong in and out but why.
    Look at this scalp trade that I just did.
    I hadn't scaled out I would have had a full 2 point profit on 3 cars.
    But i scaled out and lost a pontential 100 dollars
    my net gain was 185.60 instead of 285.60
  2. Pointing to one example doesn't prove anything.

    The point of scaling out is that over many trades you'll smooth out your equity curve and it allows you to let the occasional big winner run.
  3. ok I'll keep on posting and see if I can learn something
  4. Well think of this as well if the trade dipped a point and you took one of and made some profit then it went against you immediatley after you would have a smaller loss. Some people scale out and then bring there stop loss to b/e or less then it was so it could be a guranteed profit and let the rest of the position run or if it gets stopped you have broken even on that trade and still have a profit on the first scale or you have a profit on the first scale and a smaller loss on the second. If you were to get stopped out on everything it would be a nice loss and, so its up to you to decide. I never scaled out but when I started it made the psychology of trading easier. Sometimes I was pissed when the thing ran, but overall I was happier when my losses were smaller and I would like the op said get a nice winner and let it ride and trail my stop. I usually do 3 lots, where I take off 1 then the second with bringing my stop to be and then a free risk trade onthe rest~
  5. MGJ


    When I apply "scaling out" techniques to a wide variety of fully mechanical trading systems, my backtesting results generally agree with the above conclusion expressed by member stevegee58: scaling out typically reduces the volatility ("jaggedy-ness") of the equity curve, and increases the various gain-to-pain ratios that measure system desirability. Sharpe Ratio, Lake Ratio, MAR Ratio, Kestner K-Ratio, Ulcer Index, Sortino Ratio, Return Retracement Ratio, are all generally better when scaling out is enabled than when scaling out is disabled.

    In my own case, it has worked reasonably well in real life (actual trading) too.

    Additionally, my experience is that the selfsame analysis of "scaling out" can be applied to "scaling in" as well, producing similar test results and similar real trade experience: scaling in appears to improve gain-to-pain measures of equity curves, both in backtesting and in real life trading.

    (FWIW, my testing and trading employ mech systems applied to portfolios of >50 futures markets. The systems often have >25 simultaneous positions in different instruments.)

  6. Hmmm. "Scaling in" is definitely something I don't do, at least based on the normal definition. I see it as adding to a losing position.

    Now, I do like reverse scaling in. i.e. adding to *winning* positions.
  7. You will never exit perfectly for the simple reason that you cannot foresee the future. You will always exit either "too early" or "too late" regardless of your exit strategy. Scaling out makes your exits, and therefore your overall trading, less of a crap shoot by smoothing out the edges. It is a show of respect for uncertainty.

    Speaking only for myself, I don't think this principle applies to scaling in as the trade goes profitable. I think that the perceived "lower risk" of scaling in as the market moves in the "right" direction after initial entry is offset by the higher dollar risk associated with those later entries. My own trading looks like I occasionally scale in, however, I am actually responding to subsequent entry setups prior to full exit of the original position, particularly if it is a leveraged position.

    As for "averaging," which is adding to a position that is going against you, that's like driving faster when you're lost. If the market is telling you that your timing is off, then this is hardly the time to increase your exposure.

    But that's just my take on the matter.
  8. denali


    I don't scale in much, but I don't view scaling in as adding to a "losing position", if done properly. The premise of scaling in (not referring to a martingale type of entry strategy) is that traders rarely nail the perfect entry on a consistent basis, i.e. most have to take some heat on their position. For most trade setups, just because the market trades a point or so against your position does not invalidate the trade so why not enter again to get a better average price and get closer to your exit? I tend to focus on entry zones/areas and not on a specific entry price. I then monitor how price trades around that area. If a market goes beyond my entry zone, then I get out. Would be great to hear from other traders on how they scale into trades.
  9. Regardless if you scale out of not...

    Your exit strategy should always be decided upon prior to entry.

    Thus, once price reaches your designated profit target area that was decided upon prior to entry...

    That's when you decide if you should scale out or not.

    Simply, don't play hindsight analysis after your targets was reach to determine if your trade goals was reached.

    For example, if you had a goal of 5 points and you exited at 5.25 points but the trade continue another 3 points without you on board because you exited at 5.25 points...

    You followed your trading plan along with reaching your trading goals.

    Therefore, this is not the time to start wondering how you could have captured few more points on the trade just because you saw it go further after your exit.

    However, if you are the type that seeks perfection (not good for trading)...

    Design a re-entry system is scaling out causes you consistent problems especially on a trend day or strong directional price movements.

    #10     Dec 5, 2008