"Scaling out" is inferior behavior
- Thread starter Buy1Sell2
- Start date
Mark, in your example of trader A and trader B, you need to allow my trader A to also identify the future potential of the market and keep the full position on instead of a smaller one. The point I am making is that over the long haul, the trader that lets the full position go to maturity will be more profitable necessarily.
This is the central fallacy - that it is possible to 'predict the full future potential of the market' or identify 'the optimal exit point' or know what 'maturity' means. No trader on earth can ever know any of these things with any consistency.
If you don't trade what you see, they will eventually carry you out.
Scaling out is optimal in many situations, and the only evidence that the OP has produced to counter this fact is the assertion 'It is my opinion that it is not true'. There are may automated systems that rely on scaling out to achieve profitability. The OP has never tried to automate a trading strategy by coding it up. If he had, he would see the folly in trying to identify the absolutely optimal exit point for every trade.
One common adage...that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.
William Eckhardt
The way to build [superior] long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.
Stanley Druckenmiller
William Eckhardt
The way to build [superior] long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.
Stanley Druckenmiller
Yes I agree.
However, the typical Trader A I've met do not do such type of profit target readjustment...
The typical Trader A will stilck to the original profit target and exit all when the profit target is reached.
Of all the Trader A types I know...very few of them will change the game plan after entry in which they stay in the trade after the profit target is reached due to improved market conditions.
Mark
Umm, how do you enter a MOC "with" the specialist? You have no idea if a MOC is going to be filled on an uptick or a downtick, right? So how can you possibly know if your MOC order is going to be filled on the same side as the specialist?
I understand how you can be on the same side as the specialist at the opening bell. If the stock gaps down in the morning, the specialist is either long or flat. So you know which side of the market he is probably on. But how do you know which side of the market he is on at the closing bell?
Thanks
+-*/ Math_Wiz
There's nothing in either of these quotes which suggests that
1) Scaling out is inferior or
2) It is possible for a trader to always know the 'optimal exit point' or 'maturity point' or the 'full future potential' or any other flowery euphemism for the absolute top of a move.
By the way... yes, we now know that you've read Market Wizards, from which both of these quotes are taken. I'm starting to form a clearer impression of you. 12 months and 5000 posts is almost ZTroll-like output. I'm probably not the only one who suspected that your trading knowledge came out of a book as opposed to through practice, because anyone who has actually traded knows it's essentially impossible to do the things you describe as 'optimal', and also that there are plenty of daytraders and short term traders doing just fine in the markets, two facts which you are vehemently arguing against. Your assertions about absolutes in trading make one think that maybe you've done a lot of reading about the markets...
Mark, we cannot presume to know what is in trader A's head. We can only know that both trader A and B have the same opportunity to reevaluate the market and trader A will profit more by keeping his full position on over the long haul as compared to trader B going with a reduced position. My tenet is that if the market analysis indicates that there is a good possibility of market upside(or downside if short), then it only makes sense to let the full position run. Why pull positions if you think the market will continue? --Just doesn't make sense unless you are "afraid" of a market reversal ie overextended.
Round and round we go with the same arguments being made and you (B1S2) with the same retorts. The long and short of this argument is that there are two variables in the expected value formula that are needed to make either argument. One is probability and one is payout. What you are arguing, is that if your probability is high enough, it's more profitable to hold the entire position to maturity. What we are arguing is that if your targets are not hit with a high probability, it can be more profitable to scale out. From just messing around with the excel sheet, it seems that it's pretty close to %50, with "reasonable" payouts.
Of course this assumes that you are getting out at B/E with the rest of the contracts.
- TNG