"Scaling out" is inferior behavior
- Thread starter Buy1Sell2
- Start date
Wow... y'all covered a lot of ground here while I slogged thru the wetlands around the U.S. Army's 10th Mountain Division playground last weekend.
Permit me to add some tidbits specific to emini futures trading and trade management there, using a live example from today:
I bought the ES at 1378.75 just above its daily pivot point. Initial stop is always -2pts from fill, or 1376.75
The trade went to 1380.75 and I moved my stop to entry/par
The trade then proceeded to 1381.75 and I moved my stop to 1379.75 for +1pt locked in
The trade then went to 1383.00 and I moved stop to 1381.75 for +3pt locked in.
Price action pulled back from there, and I exited for +3pts. The one tick above +4pts unrealized happened before I could trail to +4pts... had 1383.25 or higher printed, trailed stop would have gone to 1383.75 asap
*
My style of trading hunts for directional swings or trend moves intraday. I take a modest number of trades that either stop out for -2pts or smaller loss. I take a greater number of trades that only go +2pts (or less) in favor and stop out on a trailed stop for par.
Both of those scenarios are managed as capital preservation situations, not attempted to be milked for paltry profits.
The remaining ES trades work for +2pt, +3pt, +4pt, +6pt and even +8pt intraday gains. It is that specific part of the yield curve where my edge exists. Those are the trades necessary to make my account grow beyond breakeven over the course of time.
These type of intraday sized price swings are present almost every session... anyone can see that at a glance. Knowing they exist, trusting they will always exist AND deliberately seeking them is the style I trade.
With that in mind, it makes absolutely no sense to scale out of any trade in a hurry. Trade management of the immediate losers and nil gainers stopped at par is already maxed for that aspect. A directional trader's focus must then be pointed towards riding out the inevitable winners which abundantly exist in opportunity more days than not.
**
If my style were fighting the trend, i.e. always seeking long pops in a downtrend or pullbacks short in an uptrend, scaling out might make sense. With limited profit potential and outsized loss potential while fighting directional moves, hasty exists are needed.
But... when following directional swings or trends, our expectation is for the trend to continue <b>on every trade</b>. There is no good reason to exit trades early in this case... longs yesterday (Monday) morning proved that. Price action in the ES blew thru all manner of "resistance" where fade traders shorted and got eaten alive.
Directional traders who bought S1, the daily pivot or other points of buy signals on an ES chart had lots of real estate to capture in their favor. Exiting any long trade then (or today) on a partial close in any attempt to curtail potential loss only managed to curtail potential profits.
***
Bottom line? Some reversal traders fight market direction and may have more need to exit hastily than directional traders who purposely seek the frequent, large-range directional swings.
Different trade expectations mandate different trade management tactics, imo
Permit me to add some tidbits specific to emini futures trading and trade management there, using a live example from today:
I bought the ES at 1378.75 just above its daily pivot point. Initial stop is always -2pts from fill, or 1376.75
The trade went to 1380.75 and I moved my stop to entry/par
The trade then proceeded to 1381.75 and I moved my stop to 1379.75 for +1pt locked in
The trade then went to 1383.00 and I moved stop to 1381.75 for +3pt locked in.
Price action pulled back from there, and I exited for +3pts. The one tick above +4pts unrealized happened before I could trail to +4pts... had 1383.25 or higher printed, trailed stop would have gone to 1383.75 asap
*
My style of trading hunts for directional swings or trend moves intraday. I take a modest number of trades that either stop out for -2pts or smaller loss. I take a greater number of trades that only go +2pts (or less) in favor and stop out on a trailed stop for par.
Both of those scenarios are managed as capital preservation situations, not attempted to be milked for paltry profits.
The remaining ES trades work for +2pt, +3pt, +4pt, +6pt and even +8pt intraday gains. It is that specific part of the yield curve where my edge exists. Those are the trades necessary to make my account grow beyond breakeven over the course of time.
These type of intraday sized price swings are present almost every session... anyone can see that at a glance. Knowing they exist, trusting they will always exist AND deliberately seeking them is the style I trade.
With that in mind, it makes absolutely no sense to scale out of any trade in a hurry. Trade management of the immediate losers and nil gainers stopped at par is already maxed for that aspect. A directional trader's focus must then be pointed towards riding out the inevitable winners which abundantly exist in opportunity more days than not.
**
If my style were fighting the trend, i.e. always seeking long pops in a downtrend or pullbacks short in an uptrend, scaling out might make sense. With limited profit potential and outsized loss potential while fighting directional moves, hasty exists are needed.
But... when following directional swings or trends, our expectation is for the trend to continue <b>on every trade</b>. There is no good reason to exit trades early in this case... longs yesterday (Monday) morning proved that. Price action in the ES blew thru all manner of "resistance" where fade traders shorted and got eaten alive.
Directional traders who bought S1, the daily pivot or other points of buy signals on an ES chart had lots of real estate to capture in their favor. Exiting any long trade then (or today) on a partial close in any attempt to curtail potential loss only managed to curtail potential profits.
***
Bottom line? Some reversal traders fight market direction and may have more need to exit hastily than directional traders who purposely seek the frequent, large-range directional swings.
Different trade expectations mandate different trade management tactics, imo
Good point. I'm still waiting for B1S2's response to your astute observation.
Apples and oranges. This thread is not so much about making calls as it is about trade management. Try not to confuse the two. (Besides, I don't follow anyone's calls, so I'll have to take your word for it.)
Some of you folks here may know a lot more about trading than I do, but I do know this: when someone tells you that there is a one-size-fits-all method of trading, and that it is superior to all other forms of trading at all times and under any circumstances, then you are dealing with either the messiah or a fool. You decide.
So your money management rules are something like:
On entry signal:
1. Initial StopLoss = 2 pts
2. Trailing Stop of 2 pts.
3. Around 4 point profit tighten trail to 1 point or so.
4. Over 4 points tighten trailing stop to .5 pts.
Basically, it sounds like a ratchet/ parabolic trailing stop.
Arguably, this approach has many of the same characteristics of scaling out. You limit downside with the trailing stop. You capture upside with the ratchet to the point of the first sizable reversal.
Whether it's better than scaling out really depends on market volatility. If the reversals tend to shake you out of larger moves entirely then you might do less well. In times where volatility is limited you might do better depending on the exit criteria for the scaling technique. Some sort of volatility switch between the two techniques might optimize the results a bit.
In any event, as long as you get direction more right than wrong there should be some positive expectancy with reasonable volatility. What kind of sharpe ratio or profit factor do you get on this approach?
He advocates scaling in but not scaling out -- I don't see how you can advocate one without the other. Unless, as someone else mentioned, he is trading a very specific method aka trendfollowing "turtle" style.
The point? We've taken this thread to 40+ pages for someone who adopts a very specific method and makes blanket statements for everyone else. Over and out on this thread.
<i>"In times where volatility is limited you might do better depending on the exit criteria for the scaling technique. Some sort of volatility switch between the two techniques might optimize the results a bit.
In any event, as long as you get direction more right than wrong there should be some positive expectancy with reasonable volatility. What kind of sharpe ratio or profit factor do you get on this approach?"</i>
<b>SS</b>, that's an excellent question. The answer would differ and require pages to cover in justice, depending on the timeframe of data sample in question.
During periods of normal to high volatility and price range, profit factors are better than 3/1. Periods of low volatility and price range quell results to lower expectancy degrees.
Over the course of time, I attempt to trade directional action i.e. normal to high volatility and ranges more aggressively and dabble during sessions like today, Thu - Fri last week.
Profit opportunity runs in stages, of course. Accepting that reality and focusing on catching the directional swings keeps overall return % at or above 2 Sharpe. Not an easy task when trades are limited to intraday, especially in the ES.
*
Basic human nature assumes focus on managing the losing trades better = optimal results in the end. In reality, managing the winners better and shrugging off the losing trades as nothing more than non-performing acts is what makes the big difference for my style.
Said another way, focus on letting profits run and expecting every trade to perform adequately results in many of them I have (emotional) doubts about surprising me to the upside.
I see a lot, maybe most emini traders fixated on turning small losses into small wins. Depending on the style of trading, letting small losses be that and fixating on managing the performing trades better = much greater profit realization in the end.
In any event, as long as you get direction more right than wrong there should be some positive expectancy with reasonable volatility. What kind of sharpe ratio or profit factor do you get on this approach?"</i>
<b>SS</b>, that's an excellent question. The answer would differ and require pages to cover in justice, depending on the timeframe of data sample in question.
During periods of normal to high volatility and price range, profit factors are better than 3/1. Periods of low volatility and price range quell results to lower expectancy degrees.
Over the course of time, I attempt to trade directional action i.e. normal to high volatility and ranges more aggressively and dabble during sessions like today, Thu - Fri last week.
Profit opportunity runs in stages, of course. Accepting that reality and focusing on catching the directional swings keeps overall return % at or above 2 Sharpe. Not an easy task when trades are limited to intraday, especially in the ES.
*
Basic human nature assumes focus on managing the losing trades better = optimal results in the end. In reality, managing the winners better and shrugging off the losing trades as nothing more than non-performing acts is what makes the big difference for my style.
Said another way, focus on letting profits run and expecting every trade to perform adequately results in many of them I have (emotional) doubts about surprising me to the upside.
I see a lot, maybe most emini traders fixated on turning small losses into small wins. Depending on the style of trading, letting small losses be that and fixating on managing the performing trades better = much greater profit realization in the end.
I'm actually quite surprised by those results. You must have some pretty solid techniques for determining entry points and keeping your system out of chop periods.
I agree about the emotional factor. That's why I try to let the systems run without my interference.