I don't know about arbitrary assumptions, that's just common sense. Scaling is a way to make yourself feel better, but over the long term it cancels itself out.
Never let a profit turn into a loss. (Good or bad advice)?
- Thread starter gifropan
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I don't think he's talking about every trade because he used the words this can happen a number of times. Regardless, he's got to do the statistical work involving his trade method to determine how to change his trade management and not make changes via the it feels like such is occurring.
Yes...I do agree that if he's scaling out of every trade...it can cancel itself out as you call it. However, most traders that don't scale out and then start doing a few trades via scale out for rare situations...scaling out is a benefit until he completes the redesign of his trade method after reviewing the statistical data he's collected.
one step at a time
Mark
And freezing is the opposite of burning. Neither extreme is necessarily comfortable or ideal.
Trends may or may not continue. I am inclined to assume that they do until I am given to believe otherwise. However, profitable trading is about low-risk entry. If the pyramid entry can be identified as a low-risk entry using the trading method in question, then I am inclined to agree with your assessment of pyramiding. Otherwise, I think your blanket statement is baseless.
No, it's about profitable exit. With the right money management and selling strategy, any entry is adequate.
If you scale in 5 times into one stock, imagine that you have five positions instead of one. If sell each position, are you selling out of five positions or scaling out of one? If your total account has adequate diversification, it doesn't matter. Think about it.
Scaling is like cutting a pie into 100 slices and declaring that you won't gain weight if you only eat small slices. Doesn't work that way. It's the same pie, not matter how you slice it.
I tend to agree with your side of this debate, although I will sometimes scale into a position that I see as a longer term holding. Why not let market volatility help your basis? You're probably right that over time though, the benefits cancel themselves out. Also, doubling down is tricky but can be a useful way to get out of losing daytrades.
Regarding pyramiding, Jesse Livermore advocated it. His view was that you wanted to concentrate your capital in those that were working, not the ones that weren't. If you buy on a scale down, you are guaranteeing two things. One, you will always get stopped out with your max position. Two, you will always be underinvested in trades that immediately run up. If you pyramid, you reverse those.
May I ask how you determine your position size? Let's say proper diversification dictates a $100k position. Do you put that on initially and add to it on the theory you are only risking accrued profits? Or do you pyramid up to your $100k position?