"Scaling out" is inferior behavior

[thenewguy]

Quote from ssternlight:

I'm glad you found an approach that was optimal for you. My point was the discussion here has not shown any one exit strategy or another to be superior. The most I can conclude from the discussion is that no one has presented a convincing argument for one side or the other -- which is pretty typical of ET discussions.

Having said that, the examples posted by BS12 are flawed. That's not to say that the strategy is flawed just the examples don't prove the case.

As for "talking what I know", I've traded systematically for over a decade now and have tested all kinds of ideas with many different types of money management. My own opinion is more along the lines of different horses for different courses. Generally speaking, I find the market tends to school those who come from an absolutist point of view on just about any approach.

Just my $.02

I couldn't agree more. You haven't seen any statistical proof arguing either side from me simply because I haven't done any yet. I am not arguing for either camp at the moment, however, just that I don't think the logic presented in B1S2's example is sound. I would be happy to be proven wrong and learn something, but as it stands, I don't believe his arguments are supporting the statement "scaling out is inferior behavior".

As for which one is better, I don't know. I do what I do for various reasons, one of the biggest is preservation of capital, both mental and financial.

TNG

 

[fearless9]

Quote from illiquid:

It's like me saying "Selling the top is the best way to exit a long trade", then pulling out example after example where I'd point to the top and say "Yep, I'd sell out here". It's an illusory application of a rear-view mirror "proof".

illiquid ....You are just determined to take the fun out of this thread.

 

[thenewguy]

Quote from fearless9:

illiquid ....You are just determined to take the fun out of this thread.

I don't think that was his intentions at all. If you read B1S2's arguments that's exactly what he is saying, imho.

TNG

 

[illiquid]

Quote from fearless9:

illiquid ....You are just determined to take the fun out of this thread.

I know, I take it off my screen but keep coming back to it -- like ZI's

But I just call it how I see it -- and even if I still hold the same opinion afterwards, at least I've done some more thinking towards this topic than I otherwise might have.

 

[Hydroblunt]

This thread is becoming a joke. We have b1s2 just refusing to accept any logic or math to show the point of scaling and rest trying to explain the issue beyond what it needs to be. This is all while he has admitted that he cannot daytrade, yet scaling out is inferior on all time frames.

The funny thing is that I actually tried B1S2's strategy today and ended up going from up 200net to down 250net. All from a string of losses that could have been small gains or much smaller losses due to scaling. After 10am, I just could not find the full moves correctly. Not to say I did not have profits I could have taken but I wanted to experience firsthand how the all or nothing would work out. Ironically, all my profitable trades from the first 30 min were scaled.

I'm not a trader on the floor where slippage is near nonexistant and commissions are the lowest possible. I can't just stamp my ticket with a big "F" and make the price I want. Slippage and the spread are not my friends but my biggest enemies.

That all or nothing does not work anymore unless you are a position trader that can handle the risk. This market chops ppl up, even in the strongest up/down trends.

 

[volente_00]

Quote from Buy1Sell2:

What you did was scale out at 9 points which was half the position. You are in agreement with me. The math says it all. My point is that if your profit target is 9--let it run to 9 . If your profit target is 18 , let it run to 18. If you are using a trailing stop, you are better off letting the whole trade run to get stopped out by the trailing stop rather than scaling out. That's the whole point.

and what if your profit target is only 2 points with large size ? so you sell half at 2, move your stop to break even and then the move continues 8 more points in your favor or worst case you get stopped out break even all while enjoying the benefit of having a trade on that can no longer take away from your initial capital. Risk free trading is the best kind of trading. My argument is you have a higher % chance of catching just 2 points in an ES trade with 5 times as much size versus trying to capture 10 points over a longer time frame with 1/5 of the size. The monetary risk is exactly the same for both trades.

 

[Cutten]

Quote from Buy1Sell2:

Sorry--no it's not BS. I've given you the honest answers here in this thread. You may take the suggestions or not --it's up to you. However, I am not selling anything and I am not a fake.

Ok, but if you are genuine, you're hurting your credibility a lot by making excuses to avoid an examination of your reasoning. It would be much better if you counter critiques by explaining *why* your approach is better, rather than by making obfuscations or saying "sorry, gotta go my plane is waiting". Surely you can see that?

 

[Cutten]

Quote from romik:

Cutten, you need to calm down B1's method of 'all out' is not suitable to a lot of traders for various reasons especially intraday based, one of them is a trader's ability to find a good entry point, though uncertainty about where to exit, therefore a scale out is being used, partial closure warrants locked profits with exit at entry, etc. B1 is simply saying that a strategy that halves a potential profit though keeps a loss at 100% position size is a flawed "inferior" way to trade. I both agree and disagree with his statement. it's certainly is not an easy debate as all discussions have to be relative to a specific situation, not to multiple/different methodologies. What B1 does, he does very well, intraday high leveraged position trades would be very difficult to achieve using 'all out' method, unless profit target is relatively tight and/or trailing stop used. IMHO.

His method was not the reason for my post. It was his evasions & repeated flippant dismissals of counter-points that were the problem. If he was interested in honest debate, he'd address criticisms with facts & logic. Instead, he basically said "I'm outta here, got a plane to catch". In other words, as soon as the potential flaw in his reasoning was pointed out, he ran off and tried to change the subject. A bit like a politician or snake oiler.

If he is indeed honest & legit, then he shouldn't have a problem giving legitimate responses when his assertions are challenged. Maybe he just had an off-day, in which case this thread is still open. He is free to explain the mistakes in my reasoning about adjusting position sizes in response to changing market conditions.

 

[Thunderdog]

For some reason, I am reminded of marketsurfer's thread dismissing trend following out of hand.

http://www.elitetrader.com/vb/showt...e=6&highlight=delusion shattered&pagenumber=1

Regardless of what you said, marketsurfer patiently assured you, time and again, that trends were illusory. If you recall, he was between handles at the time, having been banned for the second or third time for some reason or another, and was going under the name of hank rollins when he initiated that thread.

That boneheaded thread went on for 265 pages. You have been warned. Govern yourselves accordingly.

 

[Cutten]

Quote from illiquid:

Since b1s2 advocates trading the longer term, risking 2% on any given trade idea -- it's really no wonder that he doesn't condone scaling, there's basically no room for it. When trading such long time frames, you will need to have stops that are quite wide, and to limit your losses to 2% it means your position size relative to your account size will be much smaller than a shorter-term trader. To let go of a good trade even partially prematurely is very costly in this scenario.

That's not true if an expansion in volatility has put several profitable positions into unacceptably risky territory. In this case, one has a choice of taking on far too much risk for the portfolio, or reducing position sizes in the affected markets.

As an example, let's say terrorists conduct a coordinate series of attacks on multiple commodity producing sites across the world. If the markets were in an uptrend and you were long, you would probably have a big gap profit on the open/close of the next day's trading. However, the risk has clearly increased dramatically. Your risk exposure was 2% on each position before. Now it might be 5% or even 10% on each position. What's more, these positions may well become significantly more correlated, as they are all moving off the same bit of news. So what started as 4 or 5 relatively uncorrelated positions, each with 2% risk, might nowbe 1 highly correlated position, with a 20-30 risk. What responsible trader would advocate risking 20-30% during a highly volatile market, on what is effectively one big position? The only way to avoid that massive risk, is to take profits on your positions, and scale the risk back to acceptable levels. And that requires "scaling out".