"Scaling out" is inferior behavior

[jem]

Quote from Buy1Sell2:

No Sir. ---No matter what the position size is at the beginning, the trade should be allowed to mature fully. Why would you get out of a winner unless the initial position size was overextended?? Scaling out when overextended is the only time that scaling out should be used. And it is used then, because you have realized that a mistake was made on size initially and you are fortunate enough to escape with some profits. If the size is correct at the start, then scaling out is middle to lower rung behavior.

Now I know you are just pulling peoples chains. Your pejoratively labled "over extended" has reduced this to a semantic argument.

By the way good daytraders in liquid stocks with insulated assets, trade at prop firms and purposely put on trades that are too large and scale out quickly.

It is the best daytrading strategy if you have a high percentage of winners.

 

[Buy1Sell2]

Quote from jem:

Now I know you are just pulling peoples chains. Your pejoratively labled "over extended" has reduced this to a semantic argument.

By the way good daytraders in liquid stocks with insulated assets, trade at prop firms and purposely put on trades that are too large and scale out quickly.

It is the best daytrading strategy if you have a high percentage of winners.

We have disintegrated to putting prop firms ahead of commom sense traders. Believe me, I am not pulling chains. I don't have the time nor desire for that. I am passing on useful info to any who care to listen.

 

[Buy1Sell2]

Quote from illiquid:

Sorry if I take his word over yours, I think he's probably got a bit more experience on this sort of thing than you. Just my guess, who knows.

It's fine if you would like to take his word over mine. My experience is extensive. You'd be surprised.

 

[illiquid]

Quote from Buy1Sell2:

I do get it. He is not letting al his profits run. He is a fundamental trader and so should scale in as I do even though I am technical trader. However, I would very much doubt that he holds winning positions longer than I do.

A technical trader? Then trust me, you would be out sooner in the fx market.

 

[Buy1Sell2]

Quote from illiquid:

A technical trader? Then trust me, you would be out sooner in the fx market.

Not on daily, weekly and monthly charts. Weekly and monthly being my favorite. Fx futures only. Only a fool trades the cash market.

 

[illiquid]

So you trade technically off the monthly charts in the forex markets? Well, it does sound like you are doing the right thing in limiting yourself to as few decisions as possible.

All right, enough's enough, I'm off to bed. Night!

 

[Buy1Sell2]

Quote from illiquid:

So you trade technically off the monthly charts in the forex markets? Well, it does sound like you are doing the right thing in limiting yourself to as few decisions as possible.

All right, enough's enough, I'm off to bed. Night!

Daily, Weekly and Monthly for my long term trades. FX futures only. No cash market.

Same with all markets I trade-- Daily, Weekly and Monthly. Futures only, no stocks. By the way, there is nothing quite like catching a long term move on the weekly chart in live cattle. Fantastic position trading market!

 

[OddTrader]

http://www.elitetrader.com/vb/showt...age=6&highlight=position trader&pagenumber=92

Quote from Buy1Sell2:

As a position trader though, I stay with my original premise and just stay short. We weather the bounces and let the trade run. If I see an obvious bullish divergence on hourly charts, I may consider taking profits and reentering at a higher price, but it needs to be very very obvious.

Taking profits!

http://www.elitetrader.com/vb/showthread.php?s=&threadid=78975&perpage=6&pagenumber=29

Quote from Buy1Sell2:

No Sir. ---No matter what the position size is at the beginning, the trade should be allowed to mature fully. Why would you get out of a winner unless the initial position size was overextended?? Scaling out when overextended is the only time that scaling out should be used. And it is used then, because you have realized that a mistake was made on size initially and you are fortunate enough to escape with some profits. If the size is correct at the start, then scaling out is middle to lower rung behavior.

 

[Cutten]

Quote from Buy1Sell2:

No Sir. ---No matter what the position size is at the beginning, the trade should be allowed to mature fully. Why would you get out of a winner unless the initial position size was overextended?? Scaling out when overextended is the only time that scaling out should be used. And it is used then, because you have realized that a mistake was made on size initially and you are fortunate enough to escape with some profits. If the size is correct at the start, then scaling out is middle to lower rung behavior.

I already explained why you would get out of a winner, even though you were not overextended at the beginning of the trade. Reread my post and try to understand it this time. But I will repeat myself to make it clear. Consider the following example:

Your initial position size was fine. The market goes your way, you make a nice profit. However, the market condition then has a change - volatility increases significantly, whilst the expected reward on the trade does not. Given that volatility has increased significantly, your risk is now much higher - beyond your risk tolerance levels. In order to keep your risk within acceptable limits, you must reduce the size of your position. Thus, you sell some of your position, taking profits, whilst leaving on a position size appropriate for the new, much higher, level of risk.

That is "scaling out" and "taking profits", and is clearly the optimal thing to do, assuming you think that position size should be proportionate to risk. Therefore your premise is incorrect.

 

[Cutten]

Quote from GTS:


I was trying to allude to the fact that the person that scales out has already chosen two different exit points (mid-point and final point) and one of them is clearly superior to the other and that that trader should learn over time which one is better and then going forward exit the full position at that point (which ever one turns out to be more profitable overall).

What is the basis for your claim that "one of them is clearly superior to the other"? Isn't it quite possible that the optimal position size up to exit point 1 is to have a fully margined long position; but that between exit point 1 and exit point 2, the optimal position is to be long but with a smaller more conservative position?

For example, you may have a stock in a slow steady uptrend with minimal retracements, the stock is continually ignoring bad news and responding well to good news, the stock inches up on down market days, and is up 3-4% on up market days. You identify this as powerfully bullish behaviour and get long on margin. Later on, the stock is getting close to its earnings release, and the price movement becomes a bit more volatile as people try to decide what is likely to happen with the earnings. Normally, you never hold a really big position going into an earnings release - yet this stock is now your #1 holding by size due to the large capital appreciation.

So, do you expose yourself to the risk of a huge one day drawdown in your portfolio, if the reaction to earnings is negative - thus violating one of your cardinal trading rules? Do you completely get out of the stock, even though your analysis & expectation is still bullish - thus giving up on a probable profit? Or do you accept that, whilst still a good position, the risk has increased noticeably, and therefore put on a position size appropriate to that new reality?

According to you, one "exit point" is clearly superior to the other. You are therefore claiming that taking on insane levels of risk, or passing up an expected profit, are superior to taking on a sensible level of risk and exploiting a profitable opportunity. How can you justify such a view?