Most Profitable Strategy
- Thread starter TKOtrader
- Start date
Given that you have worked on a desk, how quickly would a market order of say USDCAD or USDEUR take to fill for $100M or do they divide it into several blocks. The sudden spikey movements in FOREX are they due to such individual orders or mass reactions to some news.
The point of rules for some is that when things go wrong or market changes...they'll have somewhere to start the adapting process instead of "randomly" changing things. For example, if the problem is in the exit...they can make changes to the rules about the exit instead of tweaking the entry.
The reason why most don't follow their rules or don't follow their trading plan...its exhibited frequently here at ET in the Journal section. Usually they can't control their emotions, easily distracted, to high of expectations (not being realistic), not enough trade experiences, not enough screen time, not properly capitalize, over leverage, margin abuse and so on...
All of these reasons why folks don't follow the rules or the plan has been discussed here at the forum thousands of time.
Traders just have a diverse background that any particular reason will have a different impact on a specific trader than the same reason for another trader. That's why the results will always be different.
You then have the deep psychological mumbo jumbo stuff...different cognitive decision making - Behavior Finance.
Simply, we all just view/react to money differently than the other person.
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I scale out a lot, especially just before resistance. Seems sensible - if it goes up, I'm still in, if it reverses, I can get out some profits at peak.
Why is it bad strategy?
Because you never reap full benefit. If you scale out, and it retraces, you missed out taking the entire postion off for more profit. If it continues in your direction, you miss out on taking more profit on the full position. There is only one reason to scale out and that is because you were wildly over extended when you put the positon on at first and now are scared and need to get the trade back to a lower risk, less scared state.
But you skipped the scenario of staying in and having it pull back, possibly turning a win into a loss. You're only analyzing winning trades.
You also skipped the scenario of closing the position, then having it continue up, losing half the profits of the scaling position.
Do you do ratio trades, btw? Just asking based on your user name.
Scaling means that you have full position on when you take losses, but you have a smaller position on when the trade is winning. I didn't skip anything. Scaling will produce inferior results over the long haul.
50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss
1st example without scaling out
10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions
2nd example with scaling out half at 1 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
5 winners 1X(4 Contracts) =20 pts($1000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net loss before commissions=-$1000
1st example without scaling out
10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions
2nd example with scaling out half at 1 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
5 winners 1X(4 Contracts) =20 pts($1000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net loss before commissions=-$1000
What about scaling in. Don't they have better results than non-scaling?
What are your thoughts?
Scaling in is subpar as well. Due to the fact that there will be times when the market goes in your direction right away and you don't have your full position on at the best price.