Yes... and 70% of the respondents to your own thread!!
Thread closed.
"Scaling out" is inferior behavior
- Thread starter Buy1Sell2
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Yes... and 70% of the respondents to your own thread!!
Thread closed.
My understanding is this .
1)scaling out is a sub maximal strategy.
however not knowing the maximum before it occurs leaves that unobtainable as a rule anyway.
2) scaling out should enable a more stable equity curve which can be important(not just psychologically) as it can affect the size of subsequent trades.
My belief is that it would really suck to be in on the big move of the year with greatly reduced size.
1)scaling out is a sub maximal strategy.
however not knowing the maximum before it occurs leaves that unobtainable as a rule anyway.
2) scaling out should enable a more stable equity curve which can be important(not just psychologically) as it can affect the size of subsequent trades.
My belief is that it would really suck to be in on the big move of the year with greatly reduced size.
We've already established (and you acknowledged) that Mr. Quant's methodology doesn't utilize targets, but rather, dynamically upgraded expectancies. As the expectancy and winning % calculations decline, the size of the position declines, regardless of how the trade has performed up to that point.
Geez, this is like typing to a friggin' brick wall.
P.S. Here's a question for you:
Mr. Quant and Mr. B1S2 hold identical positions in a stock which goes up 2% on Monday. Mr. Quant sells half his position at the day's last tick while Mr. B1S2 holds. The stock goes up 0.5% on Tuesday. Whose risk adjusted return is greater for the two day period?
Er, no - trailing stops are an "example of "risk management". "Risk adjusting" one's returns is a whole 'nother matter altogether. It involves comparing one's portfolio returns to a benchmark (or another portfolio) by calculating each in "return per unit risk" fashion. For example, a Portfolio A that returns 1.5 times Portfolio B, while incurring twice as much risk, exhibits inferior risk-adjusted returns - even though its absolute return is greater.
Scaling out if only done to lock in profit is not optimum trading. But still the argument in this thread may be just semantics. For scaling in and scaling out you need to know when. Assume you are trading the days market. Take the standard game of selling the tops of upswings and buying the bottoms of downswings in sequence. You can scale out on the turn and scale in your new position depending on how the turn presents itself. A fast turn may require a reverse in one hit. Your position size and the size of moves, up and down, which you are utilizing are important factors.
How could you possibly know? Can you predict the future? Obviously this is the result of your backtesting. But how can you be sure this has any value for your future trading? Markets are always changing. What would your results look like if future volatility were low for several years, and you´d have to live with a tight range without any big trends?
Unbelievably, B1S2's answer to this is YES!!
Strangely, he seems to be unaware of how absurd this claim actually is.
In this thread, the idea that scaling out is always inferior has been shown to be wrong in about 4 or 5 completely different ways.
one point to add here.. scaling out can be an excellent tool in position size management.
especially for long options traders, a profitable position sometimes needs to be pared down because it becomes too large a portion of portfolio risk.
especially for long options traders, a profitable position sometimes needs to be pared down because it becomes too large a portion of portfolio risk.
Nik,B1S2 can not only locate the optimal profit target level,he can also predict reversals with a high degree of accuracy.Given his skill set he should never scale out.What he fails to accept/realise is that his claims are soley based off the fact that he is apparantly a very good discretionary trader and nothing to do with "research/quantitative testing"
99.9% of traders can not "predict" reversals with high accuracy,nor pinpoint profit targets in a dynamic market of varying volatility..