"Scaling out" is inferior behavior

Do you scale out of positions?

  • I always scale out

    Votes: 113 14.1%

  • I scale out most of the time

    Votes: 228 28.5%

  • Most of the time, I do not scale out

    Votes: 189 23.6%

  • I never scale out

    Votes: 270 33.8%
  • Total voters
    800
Quote from Thunderdog:

Apples and oranges. This thread is not so much about making calls as it is about trade management. Try not to confuse the two. (Besides, I don't follow anyone's calls, so I'll have to take your word for it.)
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No confusion here T-Dog.

Some assertions were made to B1S2's trading abilities, I was just setting the record straight, and no, I don't follow anything but price action along with some trading models myself ... but I can't do what he does huh, wish.

Some of you folks here may know a lot more about trading than I do, but I do know this: when someone tells you that there is a one-size-fits-all method of trading, and that it is superior to all other forms of trading at all times and under any circumstances, then you are dealing with either the messiah or a fool. You decide.
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Kinda extreme, wouldn't you say? :D

Good trading to ya.

JJ
 
<i>"I'm actually quite surprised by those results. You must have some pretty solid techniques for determining entry points and keeping your system out of chop periods."</i>

I rely on a filter chart setup (13min or similar) to show when price action is probable to go higher, lower or currently in flux. Using that filter chart itself for signals and/or shorter timeframe keeps me on the correct side of market action far more often than not.

Here's the tough part: sitting idle when chart signals are not clearly aligned. No method known to man can identify all viable trades... sometimes the biggest moves of a day cannot be seen.

It is the sitting idle (patience) part that makes most of the money by staying out of marginal trading conditions. THAT is the eternal struggle most traders (including myself) face: accepting the fact that we can only "see" some and not all of the potential profits in a chart.

*

Here's a rhetorical question: how many times has anyone here taken 8 - 12 turns or more intraday? How many times was the first or second trade near the top/bottom for that day? How would your results have fared had you held all contracts longer than you'd dare to bear?

The answer to that question will tell on an individual basis whether one is best to keep doing what they're doing, or strongly consider trading less and holding on longer. Studying individual price action results (both realized and potential) after each trade tells us where to optimize the averaged exits, and how.
 
Quote from optionpro007:

Could you elaborate on your second point pls? Like for example, which method do you then think is best suited for intraday trading, etc...?

Thanks !
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optionpro007,

For intraday trading of index futures, I think the question of whether to scale out is not the right question to begin your inquiry with. It is not a trivial question but it IS like putting the cart before the horse. IMO, the most important skill for this type of trading is the ability to characterize the market. Once you learn to do that with consistency and confidence, the rest of the mechanics of trade management fall into place.

What do I mean by characterizing the market? It is simply being able to determine its trendiness (or flatness) within a probabilistic framework. Being a discretionary trader, I do it simply by looking at the charts. I know a couple of good traders who do it using statistical methods. I suppose there are probably other good ways of doing it just as well.

Below is one way of classifying the market conditions. This was written by Chuck Le'Beau (an author of books on system development). This is just to give you an idea. You can develop a similar framework on your own quite easily.

Condition 1 = Market is moving upward gradually in a narrow channel.
Condition 2 = Market is moving upward gradually in a wide channel.
Condition 3 = Market is moving upward sharply in a narrow channel.
Condition 4 = Market is moving upward sharply in a wide channel.
Condition 5 = Market is moving sideways in a narrow channel.
Condition 6 = Market is moving sideways in a wide channel.
Condition 7 = Market is moving downward gradually in a narrow channel.
Condition 8 = Market is moving downward gradually in a wide channel.
Condition 9 = Market is moving downward sharply in a narrow channel.
Condition 10 = Market is moving downward sharply in a wide channel.
Condition 11 = Unknown or none of the above.


As for your question about what is a better method for intraday trading, I would say that austinp's comments are right on target. Even in intraday trading you have to try to protect your large winners. Moreover, try to trade as infrequently as possible ie. go for only the strongest setups. Even if you are trading one lots, try to enter and exit at points where a 100 lot trader would be looking to do so. In my case, when I started out, I was making over 40 trades per DAY. Now, I take 8 to 10 trades per week ie. less than two trades per day (though I do it with much larger size). Over the next 5 years, I hope to bring my trading frequency down to about 150 trades per year ie about 3 trades per week.

Good luck to you.:)
 
Thank you Mr. Gump for your detailed reply. Very interesting. I am sure many intraday traders here appreciate your comments.

Best of luck to you too. =)


Quote from ForrestGump:

optionpro007,

For intraday trading of index futures, I think the question of whether to scale out is not the right question to begin your inquiry with. It is not a trivial question but it IS like putting the cart before the horse. IMO, the most important skill for this type of trading is the ability to characterize the market. Once you learn to do that with consistency and confidence, the rest of the mechanics of trade management fall into place.

What do I mean by characterizing the market? It is simply being able to determine its trendiness (or flatness) within a probabilistic framework. Being a discretionary trader, I do it simply by looking at the charts. I know a couple of good traders who do it using statistical methods. I suppose there are probably other good ways of doing it just as well.

Below is one way of classifying the market conditions. This was written by Chuck Le'Beau (an author of books on system development). This is just to give you an idea. You can develop a similar framework on your own quite easily.

Condition 1 = Market is moving upward gradually in a narrow channel.
Condition 2 = Market is moving upward gradually in a wide channel.
Condition 3 = Market is moving upward sharply in a narrow channel.
Condition 4 = Market is moving upward sharply in a wide channel.
Condition 5 = Market is moving sideways in a narrow channel.
Condition 6 = Market is moving sideways in a wide channel.
Condition 7 = Market is moving downward gradually in a narrow channel.
Condition 8 = Market is moving downward gradually in a wide channel.
Condition 9 = Market is moving downward sharply in a narrow channel.
Condition 10 = Market is moving downward sharply in a wide channel.
Condition 11 = Unknown or none of the above.


As for your question about what is a better method for intraday trading, I would say that austinp's comments are right on target. Even in intraday trading you have to try to protect your large winners. Moreover, try to trade as infrequently as possible ie. go for only the strongest setups. Even if you are trading one lots, try to enter and exit at points where a 100 lot trader would be looking to do so. In my case, when I started out, I was making over 40 trades per DAY. Now, I take 8 to 10 trades per week ie. less than two trades per day (though I do it with much larger size). Over the next 5 years, I hope to bring my trading frequency down to about 150 trades per year ie about 3 trades per week.

Good luck to you.:)
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"Scaling out" is not inferior behavior. Being rigid and not adjusting to different circumstances is inferior behavior.

Scaling out is not a behavior in the first place; it's part of an overall strategy. Scaling out is a strategy that can be used whether you're a day trader, swing trader, or a position trader.
 
Quote from I Trade 4 Money:

"Scaling out" is not inferior behavior. Being rigid and not adjusting to different circumstances is inferior behavior.

Scaling out is not a behavior in the first place; it's part of an overall strategy. Scaling out is a strategy that can be used whether you're a day trader, swing trader, or a position trader.
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It's inferior to a strategy of letting the trade mature completely no matter what time frame you are on. You can make money scaling out, just not as much.
 
Quote from Buy1Sell2:

No my trades are not all hedged with options until I feel we are nearing a top. As a market climbs I begin scaling in call option sales well out of the money. When the market is near the top, I will be fully hedged. I have not had a losing option trade since the 1992 Soybean market. As far as the scaling in goes, the move seldom(and I mean very seldom) takes off without me. If it does, I go full bore at that time. Very few times that this happens.
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Not that it matters now but i remember back when we were around 1260 before we ran to 1325 and I was bullish and catching hell from every short on ET including you but i do remember you scaling in shorts from 1260-1290 and calling for 1150 as you built the position. I think you ended up stopping out in the 90's but I still don't get the 2% stop idea. Is this 2% of your total capital ? 2% of your amount that you have allocated just for index futures ? The reason I am confused is because if one is building a position for a bigger move, each time you add you are increasing your market risk if it is based on a % amount that fluctuates with your account balance where as a fixed point amount for a trade will never change regardless. I suspect that these es trades are a small fraction of your total portfolio on these long term trades in comparison to us day traders who strictly trade ES only with maximum leverage and minimal capital due to brokerage risk.
 
Quote from volente_00:

Not that it matters now but i remember back when we were around 1260 before we ran to 1325 and I was bullish and catching hell from every short on ET including you but i do remember you scaling in shorts from 1260-1290 and calling for 1150 as you built the position. I think you ended up stopping out in the 90's but I still don't get the 2% stop idea. Is this 2% of your total capital ? 2% of your amount that you have allocated just for index futures ? The reason I am confused is because if one is building a position for a bigger move, each time you add you are increasing your market risk if it is based on a % amount that fluctuates with your account balance where as a fixed point amount for a trade will never change regardless. I suspect that these es trades are a small fraction of your total portfolio on these long term trades in comparison to us day traders who strictly trade ES only with maximum leverage and minimal capital due to brokerage risk.
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The 2 percent is 2 percent of total liquid net worth. When I build, I start small and add to it until I get the size on that I desire. I was then positioned for the selloff that I believed was coming(and did). I was never stopped out. That position was never hedged with options as I generally don't like selling ES puts. The risk using a fixed point does increase by adding positions, but as long as that point keeps you within 2% of total liquid net worth, then it's fine.
 
Quote from Buy1Sell2:

The 2 percent is 2 percent of total liquid net worth. When I build, I start small and add to it until I get the size on that I desire. I was then positioned for the selloff that I believed was coming(and did). I was never stopped out. That position was never hedged with options as I generally don't like selling ES puts. The risk using a fixed point does increase by adding positions, but as long as that point keeps you within 2% of total liquid net worth, then it's fine.
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Yes but your liquid net worth changes every day so the stop is not constant. How does that variance fit into the management of the trade ? With a 1, 2 or 20 point stop and a max fixed amount of contracts your monetary loss is constant. So you added to those shorts all the way up from 1260 to 1325 and were unhedged before we fell ? What % percent is this ES postion in relation to your total portfolio What is your current position in ES and what is your outlook ?
 
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