Scaling in/out: Crutch for the Weak

[zboy2854A]

Quote from Piffle:


Second, I completely disagree with the rest of this quote. I think you have it completely backwards. Logic and math disagree with what you are saying. Yes you can still be profitable trading non-optimally. But say you have 10 entry points where you scale into a position. One of those entries is the optimal entry. Backtest and see which one gives the highest expectation and enter your entire position at that point. I would encourage you to read up on expectation and understand how it can help you, because I think you are misunderstanding it.

But what you're missing here is that you're applying 20/20 hindsight. Of COURSE when looking back in hindsight you can say, oh the lowest rung on the ladder was the optimal entry. But in the real world, no one knows that in advance, unless you have a crystal ball or a time machine, that is. So your "backtesting", while it may have some sort of "post-game" value after the fact serves no functional real world purpose in knowing where an exact bottom or top is going to be at a singular price level. If you could know that in advance as you seem to be suggesting, then you could be world's first trillionaire...

Take the GDX example I posted about earlier. Explain to me how I could have known in advance that it would have bottomed just below 16 instead of at 25, where I began purchasing (and my ultimate average cost ended up being around 20). I'm certainly willing to hear if there's something I've missed that would have clued me in to knowing in advance that the bottom would be at 16 instead of 25. Show me how I could have handled that trade more "optimally", according to your logic.

If you have found a profitable method, then that is awesome. Very few end up consistently profitable in this game, so kudos to you. My mindset about trading is to always keep an open mind and try to improve what I am doing. I would encourage you and everyone else to have that same mindset, even if you are consistently profitable.

Besides that, I find that having a closed mind is incredibly boring and unstimulating.

And I agree with that. I'm not saying my way is the only way, in fact just the opposite. As my first post in the thread stated, if you're trading strictly on technicals or chart reading, then scaling or averaging in is a bad idea. And ultimately whatever works for someone, if they're consistently profitable, cannot be considered "wrong". Which was the whole point in my posting here, to refute the idea that scaling or averaging in is "wrong" or ineffective.

Again, whatever works for you, works for you. I can only go by my own numerous years of experience. And I can say unequivocally that the way I trade now, by establishing a ladder of orders to enter positions and using the strategies I use now, are by far the most profitable way of trading that I've ever done compared to all the other ways I've attempted to trade and be successful over my career. Again, to each his own.

 

[Jackie Treehorn]

Quote from Piffle:



Why not wait until you think it at the actual bottom and enter then? Is it because you don't know if the spot you are entering has a positive expectation? If you don't know where your best point of entry is to maximize your expectation, I would argue that it is very possible you are using scaling in as a crutch. No amount of scaling in can beat entering your entire position at the point of your best expectation as far as returns. This is a mathematical fact. Anyone who has done extensive backtesting with various entry/exit models knows this.

If you are trading a "system" that you have not tested and have no idea of where to enter to maximize your expectation, and are more trading your "gut" maybe this isn't correct for you. I have no positive trading experiences with gut trading, so I can't speak to that.

s=&postid=1237674#post1237674[/url] [/B]

I am going to have to disagree, I am mostly a short side trader.

Thinking you can pick tops 90% of the time is suicide, especially in this market, you have to pick a target and feel it out..

I am trying to capture 20% Plus moves with as little pain as possible,only way to do that is to scale in, with my max loss at 2% on a 1/4 position it allows me to be wrong without much consequence.

I could care less what is optimal for profit, i care what leaves me less exposed for max draw downs, and averaging down and throwing yourself into full position in my eyes is def not the way to go about it.

 

[billyjoerob]

"Take the GDX example I posted about earlier. Explain to me how I could have known in advance that it would have bottomed just below 16 instead of at 25, where I began purchasing (and my ultimate average cost ended up being around 20). I'm certainly willing to hear if there's something I've missed that would have clued me in to knowing in advance that the bottom would be at 16 instead of 25. Show me how I could have handled that trade more "optimally", according to your logic."

A stop loss getting you out of the trade. If your ladder has no bottom rung, then you're martingaling. If your ladder extends no higher than $25, then you are stuck with a winning trade that is too small. Your losers are going to much larger than your winners. That's an inferior strategy.

There are better and worse strategies . . . and martingale is a worse strategy.

 

[tradingjournals]

Quote from billyjoerob:

Let's say that over your entire trading lifetime you make 10000 buys and 10000 sells. Buys average $35 and sells average $37. Not bad.
Let's say another trader makes 2000 buys and sells at the same prices and same total size. Both come out with the same profit. Scaling in is irrelevant, just adds to transaction costs.

1. What if the commission structure is a per share? The guy who scales may also reduce his commission by buying on the bid and by selling on the ask, and therefore saving the spread which may offset the commission cost altogether.

2. Implicit in your remark is that averaging does not affect the distance between the average buy price, and the average sell price. Any comments?

3. An original part of your post is that the variance in buy price, and sell price will disappear if one were to trade a large number of times. Notice that the trader who will achieve it is by definition a winning trader, while the losing trader will not reach a large enough number of trades. Could averaging help in making a trader move from a losing side to a winning side?

4. What is the effect of averaging on compounding?

 

[jack hershey]

Quote from schizo:

Sorry to have misled you. You obviously overlooked my sarcasm. Anyway, it's hard not to become a hardcore cynic after twenty years of trading, especially in light of how many idiots masquerade as successful traders.

So what you are saying is that you are an average person.

 

[zboy2854A]

Quote from billyjoerob:

"Take the GDX example I posted about earlier. Explain to me how I could have known in advance that it would have bottomed just below 16 instead of at 25, where I began purchasing (and my ultimate average cost ended up being around 20). I'm certainly willing to hear if there's something I've missed that would have clued me in to knowing in advance that the bottom would be at 16 instead of 25. Show me how I could have handled that trade more "optimally", according to your logic."

A stop loss getting you out of the trade. If your ladder has no bottom rung, then you're martingaling. If your ladder extends no higher than $25, then you are stuck with a winning trade that is too small. Your losers are going to much larger than your winners. That's an inferior strategy.

There are better and worse strategies . . . and martingale is a worse strategy.

How exactly is taking a loss on that trade, versus what actually DID happen by executing my strategy (where I made over a 100% gain on the trade) a "better" strategy? That makes no sense whatsoever. Last time I checked, the math says that 100% gain is greater than a loss.

The part you're missing is that I have very specific reasons and indicators I use to execute my strategy. To keep pretending I know the exact price bottom, only to keep getting stopped out and lose money time after time to me is the very definition of inferior.

And it would appear that you are insisting on applying technical chart trading strategies to what I do, which is not at all based on such. If I begin purchasing an asset based on fundamental indicators and factors that tell me it is a compelling buy at that level, and it goes lower than my initial buy, that makes it an even MORE compelling buy, NOT less. This is the very foundation of contrarian investing, buying into extreme weakness and selling into extreme strength, not arbitrarily picking single technical price levels, then crossing your fingers hoping you were exactly right about that one single level.

And again, my brokerage account balance is the only thing that matters, and compared to the gains I used to make using traditional strict technical/stop loss type of trading, it says that indeed my strategy I employ now is by far superior. But again, as they say, to each his own. So call it whatever you want, I couldn't care less.

 

[Gabfly1]

Quote from jack hershey:

So what you are saying is that you are an average person.

Please regale us some more with your old standby: never a losing trade and always 3 times the daily range. I've missed it so.

 

[jack hershey]

Quote from Gabfly1:

Please regale us some more with your old standby: never a losing trade and always 3 times the daily range. I've missed it so.

So what you're saying is that you are an average person.

Should we post the trades for you ahead of time? How far in advance do you need to know to be able to execute?

Does your trading platform have the capability of posting the trades' locus by locus? If the answer is yes, then you can see our trades on your chart as a zig zag chart if and when you take our direction.

 

[schizo]

Quote from jack hershey:

So what you are saying is that you are an average person.

I might be an average person, but I don't have my foot in my mouth. I walk the walk.

 

[oraclewizard77]

I admit I scale out sometimes of trades, not all trades, and it depends on what I am trading.

For sake of argument, lets assume I am trading a jumping market that likes to jump up and down before making a move, so by scaling out I can sometimes make a profit even if I am wrong in which way the market will move.

On other market, you get more of a trend, so market will either get you out at your stop or go right to your profit target, on these markets it may be better to just take the stop, and then determine what you did right or wrong, and get back in on a better setup, or stop trading if you think price is random rather than predictable for the day you are trading.