Risk to reward: positive, negative or neutral ?
- Thread starter Razor
- Start date
Scale out. Close part of the position at say 1/1 rr, then part at 2/1 and leave the rest to run with b/e stop.
I know Buy1Sell2 says that it's inferior behaviour and my stats confirm that it is and you will make more money exiting all position at once at a good place, but psychologically scaling out makes trading game MUCH easier especially for novice trader. You are sure that most of your positions make money even when there is no good trend and at the same time it will teach you to let your profits run and exit at optimal point with your last part of the position.
Happy holidays to everyone!
Janis
I know Buy1Sell2 says that it's inferior behaviour and my stats confirm that it is and you will make more money exiting all position at once at a good place, but psychologically scaling out makes trading game MUCH easier especially for novice trader. You are sure that most of your positions make money even when there is no good trend and at the same time it will teach you to let your profits run and exit at optimal point with your last part of the position.
Happy holidays to everyone!
Janis
Hi Janis,
Thank you for the response; however, taking partials is like you say inferior IMHO. Think about it, when you take partials it ensures you of one thing, that your stops will always be with your full position but your gains will be with less as you scale out. Sure, you could end up with a runner ever now and then and have 1/3 - 1/4 of your position that captures a large gain once in a while but who is to say that when it is all said and done overall your r/r will be less than 2/1 (due to so many 1/1 partial trades etc). This is quite a dilema for me, go for higher win rate by widening stops and going for smaller targets or keep to a low win rate with higher target goals and smaller stops.....
Thank you for the response; however, taking partials is like you say inferior IMHO. Think about it, when you take partials it ensures you of one thing, that your stops will always be with your full position but your gains will be with less as you scale out. Sure, you could end up with a runner ever now and then and have 1/3 - 1/4 of your position that captures a large gain once in a while but who is to say that when it is all said and done overall your r/r will be less than 2/1 (due to so many 1/1 partial trades etc). This is quite a dilema for me, go for higher win rate by widening stops and going for smaller targets or keep to a low win rate with higher target goals and smaller stops.....
Targets are counterproductive... and so is scaling out (in my view)...
Both of the above assuage the psychological need for some kind of comfort zone in a trade...
But remaining in one's comfort zone is the path to mediocre results...
Both of the above assuage the psychological need for some kind of comfort zone in a trade...
But remaining in one's comfort zone is the path to mediocre results...
Yes, you risk all your position, but I had the same dilemma and made a research of one strategy, but with different MM. It indeed shows that all-in all-out approach is more profitable, but for novice traders with a lack of confidence psychological moments of trading are much more significant than maximizing profit.
If you can consistently make money at all you will make as much as you want. The main problem is to keep yourself disciplined until you gain enough confidence and see your consistent profits with your own eyes. Been there done that.
So shortly: almost every kind of reasonable MM will make you money, more or less, it doesn't matter on the first stages of trading, but scaling out often helps psychologically. Though there is another, even better option: reduce overall position size enough not to care too much about every losing trade or even string of losing trades.
Janis
Exactly! Mediocre, but CONSISTENT results is the best thing novice trader can dream of! Because consistency is much more important than high profit in the beginning stages of trading career. Consistency is achieved through good discipline and good discipline is easier to develop when there is less stress....
You seem to be saying that consistent long run performance cannot be achieved if you drop profit targets... profit targets are a novice approach which totally dismiss the possibility of outsized returns...
With more experience in the markets, I guarantee you that you will change your mind
Quote from candletrader:
You seem to be saying that consistent long run performance cannot be achieved if you drop profit targets... profit targets are a novice approach which totally dismiss the possibility of outsized returns...
With more experience in the markets, I guarantee you that you will change your mind
Of course I do not say this!
Of course better perfomance is achieved if no fixed profit target is used (assuming that you have enough experience or objective signal of your methodology to find good exit points). I know it exactly because I did such comparative manual backtests myself for 1000's of trades and spent really a lot of time on it.
What I am saying is that profit targets, scaling out etc. is mostly a way to reduce stress, not to increase profits, but stress reduction is critical at the stage of achieving consistent profitability.
Once it is achieved you have all your life to improve your results and increase your performance, but it is all worthless until you become consistent.
Hence for a trader trying to become consistent it is more important to trade in their psychological "comfort zone" than to reach outstanding performance.
I get what you are saying. Thanks for your input, greatly appreciated 
Quote from CFerret:
Of course I do not say this!
Of course better perfomance is achieved if no fixed profit target is used (assuming that you have enough experience or objective signal of your methodology to find good exit points). I know it exactly because I did such comparative manual backtests myself for 1000's of trades and spent really a lot of time on it.
What I am saying is that profit targets, scaling out etc. is mostly a way to reduce stress, not to increase profits, but stress reduction is critical at the stage of achieving consistent profitability.
Once it is achieved you have all your life to improve your results and increase your performance, but it is all worthless until you become consistent.
Hence for a trader trying to become consistent it is more important to trade in their psychological "comfort zone" than to reach outstanding performance.