"Scaling out" is inferior behavior

[romik]

What B1S2 failed to mention in this thread is that his positions are hedged pretty much all the time, as far as I can remember. That, in essence, is totally different to a situation where there is just one directional position. He also tried to apply his principles in positional trading to intraday, that didn't work out and I would say primarily as there was no predetermined profit target. OK, some do not use predetermined PTs, but exit using either a trailing stop, scale out or simply exit 100% position when a possible reversal signal makes itself seen.

I am not knocking the way you trade B, I've picked up a lot of great info from your posts and you know I've always been appreciative of your willingness to give it away. But intraday you pretty much suck

 

[HolyGrail]

Quote from Thunderdog:

Perhaps, but not necessarily. Unless you are especially gifted or lucky, an all-or-nothing mentality is not particularly congruent with an environment of uncertainty.

Very well put, and I agree. Hydro made an excellent point as well with "I do not get why you automatically consider scaling out as taking small profits. How is scaling automatically imply small profits? "

Of course after all is said and done we can look back and say if we would have held we would have made more money, but that is not the game we play. If your strategy does not do better than "buy and hold" then you probably shouldn't scale out. If it does then who is to say you didn't make more money with the profit you made on the scale out stock with a new stock?

 

[dandxg]

I believe it all comes down to whether or not it's part of your plan. For me if I scale in/out it's because I am trying to avg. down losing positions. For some, it's part of their plan. If you trade larger size than can be filled on bid/ask you have to scale in/out to aim for an avg price.

 

[austinp]

First of all, I'd like to thank everyone for sharing a wonderful, insightful conversation here while remaining perfectly respectful and courteous. Isn't that a pleasant change from too many other threads here?

Thank you for that!

*

I think scaling out for stock traders playing multiple - many positions makes more sense than traders playing one - two positions. There is a difference there, for sure.

**

Here's the main point I'd like you to keep in mind. When all of your trades are logged over three months, six months or a year, all you see is raw data results. There is no individual circumstance. There isn't this trade stalling at a double top, that trade nearing S2, the other trade filling a gap, earnings warning, terrorist threat, econ reports, etc.

Just raw math compiled... exactly like mechanical systems quantify. All of those individual discretion choices are merely emotional reasons to micro-manage <b>THIS TRADE</b> currently open in front of us.

I absolutely, positively guarantee you one thing as an iron-clad fact: if you are a directional trader, holding every trade a bit longer than you dare will make you A LOT more money in the future. I myself have missed out on a pretty big six-figures unrealized this year alone by exiting too many trades too soon. Settling for +$200 per ER contract or +$100 per ES contract when many, many of them went two - three times that was by far my biggest mistake.

Whatever I end up making this year, two times that was left unharvested because I jerked out of trades too soon. BTW... I do use trailed stops, and I abused them at times along the way.

***

That rule does not hold true for reversal scalpers. If your game is scalping +2pts ES short in pullbacks on an uptrend or +2pts long at pauses in a downtrend, forget about holding on for bigger gains.

If you are a swing or directional trader, I absolutely promise you that much bigger gains are possible all the time... if you hunt for an expect them to materialize. They already do, far more days than not.

#1 mistake most traders make (starting right here with myself in this chair) is exiting winners too soon. The next biggest mistake isn't even a distant second to that.

Now all I have to work on is holding most of my trades longer :>)

===

I'm off to Fort Drum NY for a long weekend of big-game hunting in the swamps. Quite sure I won't see a thing, but it's very therapeutic and self-balancing to be out in the mucky wilderness like that. Wish you could be right there with me :>)

My last post in this thread, I hope my little bit helped someone, and best trading wishes to you!

Austin

 

[HolyGrail]

Austin you very well may be correct, but I still look at it as a woulda, coulda, shoulda scenario. It's all about being a monday morning quarterback but unfortunately we cannot trade with hindsight.

Have a good trip!!!

 

[tradertony76]

I wish I remember the issue, but I beleive a couple years ago, Stocks & Commodities magazine had an article where they tried to mathematically prove that scaling out was a sub optimal strategy. Cant remember the details tho'....

I think the were talking about position trading.

Day trading is a different story, especially if you're getting member commissions.

-T

 

[kiwi_trader]

Quote from tradertony76:

I wish I remember the issue, but I beleive a couple years ago, Stocks & Commodities magazine had an article where they tried to mathematically prove that scaling out was a sub optimal strategy. Cant remember the details tho'....

I think the were talking about position trading.

Day trading is a different story, especially if you're getting member commissions.

-T

The trouble with a mathematic proof is that it will be made on top of a lot of assumptions. And none of them will take into account the increased ease with which one can ride Austin's second position if the first one was taken of at a 3:1 profit at the previous high

 

[HolyGrail]

Exactly. If I go into a stock with a target of 6 and scale out at 4 and the original stock does eventually make it to 6, it was only a bad move if my next stock makes less than 2 in the same period of time it took to capture the other 2 dollars from the first stock.

 

[Buy1Sell2]

Quote from illiquid:

my biggest problem for the longest time was holding my profitable positions too long -- scaling out became my remedy for that.

What was wrong was that your system was not defining the exit point correctly. Had that been defined correctly, you would have exited your entire position without having the retracement make you think you had to scramble to get out and save profits. Folks it's just common sense to exit the whole position for the full profit. I've been in this business for 2 and half decades--I know what I am talking about.

 

[Thunderdog]

Quote from Buy1Sell2:

What was wrong was that your system was not defining the exit point correctly. Had that been defined correctly, you would have exited your entire position without having the retracement make you think you had to scramble to get out and save profits. Folks it's just common sense to exit the whole position for the full profit. I've been in this business for 2 and half decades--I know what I am talking about.

So what you are saying is that you can determine the optimal exit point for your positions: you don't get out early, and you exit before the market retraces. Astonishing! I will admit that if I could time my exits perfectly, then I would also exit entirely at that perfect moment.

As an aside, some of the posts by those people who don't scale out seem to imply that the traders who scale out do not participate in extended moves. Am I missing something?