"Scaling out" is inferior behavior

[illiquid]

Quote from volente_00:

Let's rename the thread to


"Arguing on ET" is inferior behavior

Or "Blanket statements are inferior behavior".

Then again, if it was "Scaling out is inferior behavior for my method", no one here would give a shit

 

[thenewguy]

Quote from Buy1Sell2:

Four ES Contracts 50% win ratio versus Four ES Contracts 50% win ratio scaling out at half target.

9 pt target 3 pt initial stop loss

1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 loser for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000


2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracta) =120 pts (-$6000)
Net profit $7500

Money can be made scaling out, but it is inferior bevior.

Scaling out that way is definately "inferior". However, this seems to be more of an argument for accurate price targets. If you scale out first at your price target and then let it run you get different results, especially if your price target is not very accurate in relation to the high.

To me, the only question is how do you know the second trades were scaled out at 4.5? You assume by "scaling out" you are selling the first bunch BEFORE the price target, not after.

My question to you is, how do YOU pick your price targets. You seem fairly certain that they are as good as can be....

Thanks,

TNG

 

[Buy1Sell2]

Quote from thenewguy:

Scaling out that way is definately "inferior". However, this seems to be more of an argument for accurate price targets. If you scale out first at your price target and then let it run you get different results, especially if your price target is not very accurate in relation to the high.

To me, the only question is how do you know the second trades were scaled out at 4.5? You assume by "scaling out" you are selling the first bunch BEFORE the price target, not after.

My question to you is, how do YOU pick your price targets. You seem fairly certain that they are as good as can be....

Thanks,

TNG

Put any price target in there or any stop loss, including a scenario where you let the rest run. This is the main point of my discussion and assertion here. The math doesn't lie. This argument is not dependent on what your system is. That's why a "banket" statement can be made.

 

[illiquid]

Quote from Buy1Sell2:

Put any price target in there or any stop loss, including a scenario where you let the rest run. This is the main point of my discussion and assertion here. The math doesn't lie. This argument is not dependent on what your system is. That's why a "banket" statement can be made.

We've been over this already -- in retrospect, the scale out will always prove inferior to the "mathematically" determined optimal exit. It doesn't hold in real time however, where scaling out can prove more profitable in changing conditions in regards to method X. You are letting after-the-fact math fool you.

Quote from illiquid:

The big mistake buy1sell2 makes is that he assumes scaling out will always prematurely exit a position, versus a full exit. This is true only in hindsight, comparing the scaled exit to an "optimal" exit. But in real-time, in real trades, scaling will sometimes keep you in the trade longer than you normally would, which is something Thunderdog alluded to. Scaling out is always inferior to the "optimal" figure, but the optimal is just a "theoretical" number -- this doesn't hold in real-time.

Say, based on backtested figures, you've found that an "optimal" target will net you 3 points on average for method X, based on a past series of trades; over the same time frame, scaling out only nets you 2. However, let's say for the next Y number of trades, the ranges widen quite a bit for method X -- scaling out leaves you in the trade longer, and therefore for those trades you've netted an average of 6, while your "optimal" exit yields just 3.5 for the new series.

Now, if you backtest with the new information you receive with the second series of trades, you will find that a new "optimal" target will net you 4.5 points, while scaling overall yields 4. The difference here is this: the 4 points on avg for scaling is an actual figure that you would have received for all trades; the 4.5 points for the "optimal" target is just a theoretical figure which has been adjusted for the new series -- you still only get 3.5 for using the "optimal" target from the first series. Optimal is only optimal in hindsight, and comes down to how quickly you can adapt that figure for incoming trades. It's quite possible that scaling out will yield a greater profit overall -- at least a profit more "reflective" of current conditions -- while an optimal figure can move quite slowly, depending on how many trades are used as history/how fast conditions have shifted.

edit: the converse example for a deteriorating method "X" would probably be more realistic and to the point -- that is, a method whose optimal target is progressively smaller. If method "X" began as a very high yield setup, say given for a high volatility market, but deteriorates as volatility contracts, you would see a far greater "real-time" difference in results between a scaled exit versus an "optimal" exit -- meaning, the prior higher "optimal" exit might yield 0 or worse, as opposed to an "updated" optimal figure.

 

[thenewguy]

Quote from Buy1Sell2:

Put any price target in there or any stop loss, including a scenario where you let the rest run. This is the main point of my discussion and assertion here. The math doesn't lie. This argument is not dependent on what your system is. That's why a "banket" statement can be made.

That doesn't make any sense to me. I'll set a price target of 2 pennies, and let the rest run. You're telling me that selling it all at 2 pennies will ALWAYS be more profitable then leaving half on and letting it run higher or lower?

TNG

 

[illiquid]

Quote from thenewguy:

That doesn't make any sense to me. I'll set a price target of 2 pennies, and let the rest run. You're telling me that selling it all at 2 pennies will ALWAYS be more profitable then leaving half on and letting it run higher or lower?

TNG

What b1s2 will say to you is that, given that you made more money scaling out than exiting all at 2 pennies, that your 2 penny target was wrong, and should have been higher. Now, how you realize this beforehand and apply this way of thinking in real-time is beyond me.

 

[thenewguy]

Quote from illiquid:

What b1s2 will say to you is that, given that you made more money scaling out than exiting all at 2 pennies, that your 2 penny target was wrong, and should have been higher. Now, how you realize this beforehand and apply this way of thinking in real-time is beyond me.

Well then, the title of the thread should be "setting inferior price targets is inferior behavior"!!



TNG

 

[FanOfFridays]

Quote from illiquid:

What b1s2 will say to you is that, given that you made more money scaling out than exiting all at 2 pennies, that your 2 penny target was wrong, and should have been higher. Now, how you realize this beforehand and apply this way of thinking in real-time is beyond me.

Yes, that's the essential problem. I hate to say this but anyone with any trading experience understands that it is impossible to know in advance the optimal exit point. A number of people have pointed out the same thing here but the OP isn't buying it. Either he's some sort of super-trader or...

 

[Buy1Sell2]

Quote from thenewguy:

That doesn't make any sense to me. I'll set a price target of 2 pennies, and let the rest run. You're telling me that selling it all at 2 pennies will ALWAYS be more profitable then leaving half on and letting it run higher or lower?

TNG

Just type that example up for me so I can see. Make certain that the final price target on both sides of the example is "letting it run".

 

[thenewguy]

Quote from Buy1Sell2:

Just type that example up for me so I can see. Make certain that the final price target on both sides of the example is "letting it run".

I'm not 100% sure what you are asking for, but here is an example (although not a real trade I've done, but definately an example of what I have done in the past).

TNG

Edit: screwed up the image, will post it again.