"Scaling out" is inferior behavior

[fearless9]

Quote from volente_00:

What was your example ?

page 58 ... there were no takers

 

[Buy1Sell2]

Quote from volente_00:

B1S2, do you see the other side of the fence ?

You can even change the point targets higher or lower but it is the same principle.

If you change the profit targets higher then the profit targets on both sides of the comparison need to be changed higher. The system that allows the full position to run to the target will beat the system that scales out every time. If the system being used is flawed in terms of winning expectancy or doesn't have the proper Reward/Risk Ratio then you may lose money, but you will lose less by not scaling out. It's simple.

 

[volente_00]

Quote from Buy1Sell2:

If you change the profit targets higher then the profit targets on both sides of the comparison need to be changed higher. The system that allows the full position to run to the target will beat the system that scales out every time. If the system being used is flawed in terms of winning expectancy or doesn't have the proper Reward/Risk Ratio then you may lose money, but you will lose less by not scaling out. It's simple.

1 to 1 rr


The flaw is you are assuming that you can exit at the exact top or bottom on every trade in order to beat the scale out method results.

Do you disagree with my position size argument ?

It does not matter if i trade for 2 point targets while your trade for 10 as long as my size is 5 times as much. With a 1 to 1 that results in the same exact monetary risk as you but odds are I will get multiple trades in while your are still waiting to ring that 10 pointer.

 

[Buy1Sell2]

Quote from volente_00:

1 to 1 rr


The flaw is you are assuming that you can exit at the exact top or bottom on every trade in order to beat the scale out method results.

Do you disagree with my position size argument ?

It does not matter if i trade for 2 point targets while your trade for 10 as long as my size is 5 times as much. With a 1 to 1 that results in the same exact monetary risk as you but odds are I will get multiple trades in while your are still waiting to ring that 10 pointer.

If my system calls for 10 points and yours calls for 2 points, we would both have done research on determining what our winning percentage expectancy should be. If I am trading the 10 point system, then I let the full trade run to 10 points instead of scaling out. If you are running the 2 point system, then you let the full trade run to two points. That is all I am saying. I am not arguing whether a 2 point system with larger leverage can beat a 10 system with less leverage. That's an entirely different discussion. What I am saying is that within a system, let's say the 2 pointer, you should let the full trade run to the full 2 points instead of scaling out. Period.

 

[volente_00]

Quote from Buy1Sell2:

If my system calls for 10 points and yours calls for 2 points, we would both have done research on determining what our winning percentage expectancy should be. If I am trading the 10 point system, then I let the full trade run to 10 poins instead of scaling out. If you are running the 2 point system, the you let the full trade run to two points. That is all I am saying. I am not arguing whether a 2 point system with larger leverage can beat a 10 system with less leverage. That's an entirely different discussion. What I am saying is that within a system, let's say the 2 pointer, you should let the full trade run to the full 2 points instead of scaling out. Period.

You are once again assuming that you know exactly where top or bottom will be, if you were confident in that you would not average into entries. So say the trade only runs 9 points towards your target, do you take any off, or do you sit there greedy for that last point and watch it reverse and then it goes on to take out your 10 point stop ? Do you see the point of scaling out now ?

 

[Buy1Sell2]

Quote from volente_00:

You are once again assuming that you know exactly where top or bottom will be, if you were confident in that you would not average into entries.

No I am not saying that. What I am saying is that a person can reasonable define how far the market moves after their signal and can come up with a system that allows you to exploit the range of the instrument. Whether you have defined a system that picks 30 percent winners or 70 percent winners, scaling out is always going to provide a less profitable system over time.

 

[Buy1Sell2]

Quote from volente_00:

You are once again assuming that you know exactly where top or bottom will be, if you were confident in that you would not average into entries.

No I am not saying that. I may be better able to define tops and bottoms, but that has no bearing on this discussion. What I am saying is that a person can reasonably define how far the market generally moves after their signal and can come up with a system that allows you to exploit the range of the instrument. Whether you have defined a system that picks 30 percent winners or 70 percent winners, scaling out is always going to provide a less profitable system over time.

 

[Buy1Sell2]

Quote from Cutten:

Ok, but if you are genuine, you're hurting your credibility a lot by making excuses to avoid an examination of your reasoning. It would be much better if you counter critiques by explaining *why* your approach is better,

Done and Done


Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.

9 pt target 3 pt initial stop loss

1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000


2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500

Money can be made scaling out, but it is inferior behavior.

 

[illiquid]

Quote from Buy1Sell2:

The math doesn't lie. When you scale out, you will make less/lose more when scaling out.

As long as you keep posting the above, I will continue to post the below, so address this issue directly for once please.

Quote from illiquid:

We've been over this already -- in retrospect, the scale out will always prove inferior to the "mathematically" determined optimal exit. It doesn't hold in real time however, where scaling out can prove more profitable in changing conditions in regards to method X. You are letting after-the-fact math fool you.

The big mistake buy1sell2 makes is that he assumes scaling out will always prematurely exit a position, versus a full exit. This is true only in hindsight, comparing the scaled exit to an "optimal" exit. But in real-time, in real trades, scaling will sometimes keep you in the trade longer than you normally would, which is something Thunderdog alluded to. Scaling out is always inferior to the "optimal" figure, but the optimal is just a "theoretical" number -- this doesn't hold in real-time.

Say, based on backtested figures, you've found that an "optimal" target will net you 3 points on average for method X, based on a past series of trades; over the same time frame, scaling out only nets you 2. However, let's say for the next Y number of trades, the ranges widen quite a bit for method X -- scaling out leaves you in the trade longer, and therefore for those trades you've netted an average of 6, while your "optimal" exit yields just 3.5 for the new series.

Now, if you backtest with the new information you receive with the second series of trades, you will find that a new "optimal" target will net you 4.5 points, while scaling overall yields 4. The difference here is this: the 4 points on avg for scaling is an actual figure that you would have received for all trades; the 4.5 points for the "optimal" target is just a theoretical figure which has been adjusted for the new series -- you still only get 3.5 for using the "optimal" target from the first series. Optimal is only optimal in hindsight, and comes down to how quickly you can adapt that figure for incoming trades. It's quite possible that scaling out will yield a greater profit overall -- at least a profit more "reflective" of current conditions -- while an optimal figure can move quite slowly, depending on how many trades are used as history/how fast conditions have shifted.

edit: the converse example for a deteriorating method "X" would probably be more realistic and to the point -- that is, a method whose optimal target is progressively smaller. If method "X" began as a very high yield setup, say given for a high volatility market, but deteriorates as volatility contracts, you would see a far greater "real-time" difference in results between a scaled exit versus an "optimal" exit -- meaning, the prior higher "optimal" exit might yield 0 or worse, as opposed to an "updated" optimal figure.

 

[thenewguy]

Quote from Buy1Sell2:

Done and Done


Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.

9 pt target 3 pt initial stop loss

1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000


2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500

Money can be made scaling out, but it is inferior behavior.

Why are your scale out prices always less than the profit target price?

TNG