"Scaling out" is inferior behavior

[frugi]

In your example you fail to take account of the probability of reaching 4.5 points but not reaching 9.

The scale out method will bank profit in this scenario (0.75 pts/lot) while the classic method will lose money.

 

[illiquid]

Quote from Buy1Sell2:

I have addressed this numerous times. You do your homework and come up with a system that has decent expectancy and then you let the trade run to that target . Whether or not I as a trader can pick optimal targets is not the question. Whether or not a trader can pick the exact top is not the question. The question is whether or not after defining your profit target that you have set for yourself, it makes sense to get out of some of the position prior to maturity. The answer is no.

It makes sense if you expect the market conditions to change; it makes sense if you define the market as a fluid set of possibilities; it makes sense if you consider the market complex, as opposed to simple as you keep reminding us.

How do you even begin to adjust your targets, if you find them deficient? By the time you make a shift, the market will adjust again. My point is, the math does lie (as you present it), sorry.

 

[Buy1Sell2]

Quote from volente_00:

B1S2, run the same example for 2 point target and 2 point stop between the 2.

50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss

1st example without scaling out

10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions


2nd example with scaling out half at 1 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
5 winners 1X(4 Contracts) =20 pts($1000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net loss before commissions=-$1000

 

[volente_00]

Quote from Buy1Sell2:

Of course they don't have the same stop loss once you scale out and move the stop up. They also don't have the same ability for profit. Let your trades run to your target whatever that may be. Over time you will be much better off. The strategy of scaling out and moving stop to breakeven is a strategy to keep from losing anything. It is not a strategy designed to win big.

Then why do you list them as both having the same stop loss amount in your example ?

 

[volente_00]

Quote from Buy1Sell2:

50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss

1st example without scaling out

10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)
Net profit 0 before commissions


2nd example with scaling out half at 1 pt
5 winners 2X(4 Contracts) =40 pts ($2000)
5 winners 1X(4 Contracts) =20 pts($1000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)
Net loss before commissions=-$1000

2nd example can't lose on 4 contracts if they scaled out and only have 2 remaining. The two traders can not have the same loss amount total if one scales out.

 

[Buy1Sell2]

Quote from volente_00:

Then why do you list them as both having the same stop loss amount in your example ?

Because even though the total dollar stop loss would be different when you scale out, a person employing the breakeven strategy would be moving their stop up to breakeven as well when they didn't scale out while giving themselves the opportunity for more profit. Once the trade moves in your direction, I have no problem using a trailing stop, but the profit target remains intact and shoule be allowed to be reached. You are making ny case by leaps and bounds and it started with you saying that the scale out trader needs a higher winning percentage to be as profitable as the non scaler.

 

[thenewguy]

Quote from Buy1Sell2:

After maturity is a new trade setup with entirely different percentage expectancies. Let's be honest, when you define a system you are calculating the probabilities of a trade reaching maturity. If the trade after maturity still had a high expectancy why would you take any of it off. Better homework would define a better maturity "area". In any case, the trade after maturity would follow the same guidelines--it would be better to not scale out of the trade that you left on.

When you calculate odds on a trade there's more than just the % chance of it hitting your profit target. What's the % time there's a signifigant % move after your target? It makes sense (depending on your system) to leave a small portion of the trade on to capture a very large move that happens a small % of the time.

Furthermore, you consitently deny that this has anything to do with profit targets, but in your rebuttal you keep say "better homework would define a better maturity area"??? I'm a little dense sometimes, but isn't that the same thing?

TNG

 

[Buy1Sell2]

Quote from volente_00:

2nd example can't lose on 4 contracts if they scaled out and only have 2 remaining. The two traders can not have the same loss amount total if one scales out.

Also, can't lose when the non scaler moves his stop up tp breakeven as well. Thanks Vol very much for your input today. It has helped enormously. And I mean this in a very nice way.

 

[volente_00]

Quote from Buy1Sell2:

Because even though the total dollar stop loss would be different when you scale out, a person employing the breakeven strategy would be moving their stop up to breakeven as well when they didn't scale out while giving themselves the opportunity for more profit. Once the trade moves in your direction, I have no problem using a trailing stop, but the profit target remains intact and shoule be allowed to be reached. You are making ny case by leaps and bounds and it started with you saying that the scale out trader needs a higher winning percentage to be as profitable as the non scaler.

Your numbers are flawed. You can not have the same loss. The case of the scale out trader is that his loss will be half as much as the other trader because he only has half the position left to lose on. True he might not gain as much profit but his loss amount will be far less to offset that.
The case is that if you use scaling out you end up being a higher % trader because you have a higher probability to profit on every trade due to reduced risk.

 

[Buy1Sell2]

Quote from thenewguy:

When you calculate odds on a trade there's more than just the % chance of it hitting your profit target. What's the % time there's a signifigant % move after your target? It makes sense (depending on your system) to leave a small portion of the trade on to capture a very large move that happens a small % of the time.

Furthermore, you consitently deny that this has anything to do with profit targets, but in your rebuttal you keep say "better homework would define a better maturity area"??? I'm a little dense sometimes, but isn't that the same thing?

TNG

What's the percentage that it goes beyong maturity. If it's high , you would want to raise your maturity target. With regard to the profit targets, what I am saying is that it doesn't matter what your profit target is, it could be a bad one with 5 % expectancy, but you'd still do better(lose less) over time by not scaling out.