"Scaling out" is inferior behavior

[fearless9]

Quote from Buy1Sell2:

Actually smart has very little to do with trading. Common sense is more the key. It's better to keep things as simple as possible and run with a profitable trade as long as possible. There are quite a few unnecessary classes, websites, programs and publications all designed to make the newer and inexperienced trader believe that trading is hard.--It isn't. [/QUOT

Very wise.
Trading is ring fenced by an industry whose objectives are quite different than those of a successful Trader.

Newbies need to understand this point of view otherwise they will be caught in a web of dependency.

 

[Buy1Sell2]

Quote from Buy1Sell2:

Exactly what I thought would happen. My point is misconstrued by readers to mean that I am talking about holding through long periods. What am I saying is that no matter what your time period, whether it's a 1 minute chart or a 1 year chart--you do not scale out profits. It's is a deficient notion to choke out profits.

No one would hold through periods of drawdown greater than 2 percent of total liquid net worth.

For example let's say that you are trading a system in the ES with a 3 point stop and a 6 point profit target. --You don't take profit at 5 points, you let the whole position run to 6 points. Common Sense.

 

[Thunderdog]

Quote from fearless9:

Quote from Buy1Sell2:

Actually smart has very little to do with trading. Common sense is more the key. It's better to keep things as simple as possible and run with a profitable trade as long as possible. There are quite a few unnecessary classes, websites, programs and publications all designed to make the newer and inexperienced trader believe that trading is hard.--It isn't. [/QUOT

Very wise.
Trading is ring fenced by an industry whose objectives are quite different than those of a successful Trader.

Newbies need to understand this point of view otherwise they will be caught in a web of dependency.

That's just peachy. But why don't you ask what B1S2's above noted "wisdom" has to do with scaling out of a position?

 

[Thunderdog]

Quote from Buy1Sell2:

For example let's say that you are trading a system in the ES with a 3 point stop and a 6 point profit target. --You don't take profit at 5 points, you let the whole position run to 6 points. Common Sense.

Unless it only reaches 5 points and then retraces. Then you lose 3. Hey, if you can arbitrarily decide how far the market will go in your examples, then so can I.

 

[JimmyJam]

Quote from Thunderdog:

Unless it only reaches 5 points and then retraces. Then you lose 3. Hey, if you can arbitrarily decide how far the market will go in your examples, then so can I.

LOL

If the positioned moved 5pts in your favor, hopefully you would have at least moved your stop to cover your entry price.

If a trader didn't have the sense to at least do that much, the rest of this conversation is moot.

JJ

 

[illiquid]

Of course, if you decide to scale out, you will never get the maximum possible profit -- in retrospect holding the max position versus scaling will always be better. But how many times will you exit entirely, and then see the market have another leg up? Or how many times will you decide to hold the entire the position, then watch it go back to your break-even point? Scaling is just cutting off the best and worst case scenarios.

 

[Thunderdog]

Quote from illiquid:

Scaling is just cutting off the best and worst case scenarios.

Thereby smoothing the equity curve. There's something to be said for calm waters, especially when you're out at sea in a rowboat.

 

[trendy]

Quote from Buy1Sell2:

For example let's say that you are trading a system in the ES with a 3 point stop and a 6 point profit target. --You don't take profit at 5 points, you let the whole position run to 6 points. Common Sense.

And if it only gets to 5.75 points, then what? You ride it all the way back to breakeven? Or, maybe you decide to cover at some point once you realize the trade is unlikely to reach your 6 point target. Had you scaled out near your target, you would have wound up with a greater profit, than blowing it all out at once.

 

[Jachyra]

Quote from trendy:

And if it only gets to 5.75 points, then what? You ride it all the way back to breakeven? Or, maybe you decide to cover at some point once you realize the trade is unlikely to reach your 6 point target. Had you scaled out near your target, you would have wound up with a greater profit, than blowing it all out at once.

Yah, and that may happen on several trades in a row and probably get very frustrating.... but who cares... the one or two times an hour (or day..or..week..or whatever time frame you're trading in) you are able to catch a decent run and really build a position up you'll make 10 times that amount.

 

[DHOHHI]

Quote from Thunderdog:

Unless it only reaches 5 points and then retraces. Then you lose 3. Hey, if you can arbitrarily decide how far the market will go in your examples, then so can I.

Exactly.

And then there are those of us who actually trade for a living. So scaling out (or in) makes a lot of sense. Having studied optimization in grad school I can say that no one is going to maximize their profit on a trade very often. And the old saying that "you can't go broke taking profits" applies very well in the above example where a trader holds out for his 6 points and ends up losing 3 on a selloff. In my book +5 (or any profit) is a lot better than -3.