"Scaling out" is inferior behavior

[volente_00]

Quote from Buy1Sell2:

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.

I disagree, the non scaler will still lose because of commissions.
The scaler has already locked in his profit so even if it comes back to breakeven on the remaining half he still ends up making money on the trade unlike the non scaler.

 

[romik]

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

you should scale out at 2 points, not 1 point.

 

[illiquid]

Quote from thenewguy:

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

Scaling is all about finding a "better (aka current/updated) maturity area", only you are doing it in real time. What you are doing by scaling is placing greater weight on the results of recent trades, while giving less weight to the result of past trades (where the "optimal" exit has been calculated from) -- an analogy would be an EMA vs an MA on "maturity", so to speak.

 

[Buy1Sell2]

Quote from volente_00:

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.

At the point wher you scale out and I stay in and we both move stops to breakeven, there is no chance that you, scale out trader will have a higher winning percentage. However, you will have less chance to profit on the trade. If I am a breakeven strategist, it would make more sense to leave the whole trade on.

 

[volente_00]

Quote from romik:

you should scale out at 2 points, not 1 point.

That is a good point, So is scaling out still inferior if it is done at your initial point target ? In my example I told you of how I sometimes scale out at 2 points on ES and let the rest ride, Your example assumes that you scale out early every time before your point target is reached.

 

[Buy1Sell2]

Quote from volente_00:

I disagree, the non scaler will still lose because of commissions.
The scaler has already locked in his profit so even if it comes back to breakeven on the remaining half he still ends up making money on the trade unlike the non scaler.

On one single trade , yes, but not over the whole of his trading. He will have defined the place to get out that gives decent expectancy over the long haul and the additional profits will more than pay for commissions.

 

[illiquid]

Quote from volente_00:

In my example I told you of how I sometimes scale out at 2 points on ES and let the rest ride, Your example assumes that you scale out early every time before your point target is reached.

He must assume this, to make his theory correct. He is always right in "retrospect", where he needs to stay in order to continue the argument.

 

[Buy1Sell2]

Quote from romik:

you should scale out at 2 points, not 1 point.

2 pts was the mature profit target in this example. That wouldn't be scaling out, that would be letting the trade mature.

 

[volente_00]

Quote from Buy1Sell2:

At the point wher you scale out and I stay in and we both move stops to breakeven, there is no chance that you, scale out trader will have a higher winning percentage. However, you will have less chance to profit on the trade. If I am a breakeven strategist, it would make more sense to leave the whole trade on.

That is where you are mistaken, if I have already taken profit on half, I can not lose on the trade after commissions. You will lose on the trade because of transaction costs. I will never lose money period on a scale out trade once half is taken off the table. You will lose money if it comes back to your entry.

 

[volente_00]

Quote from Buy1Sell2:

2 pts was the mature profit target in this example. That wouldn't be scaling out, that would be letting the trade mature.

so answer the question,

Is scaling out inferior if you let it hit your profit target and then start to scale out ?




I understand your point about cutting yourself short and selling at only half your initial point target.