"Scaling out" is inferior behavior

[Buy1Sell2]

Quote from volente_00:

That is a good point, So is scaling out still inferior if it is done at your initial point target ? In my example I told you of how I sometimes scale out at 2 points on ES and let the rest ride, Your example assumes that you scale out early every time before your point target is reached.

While you would let the rest ride, I would be letting the whole trade ride. If my system tells me that it goes to 6 points 50 percent of the time, there is no sense getting out of any at 2 pts especially if the stop has been moved to breakeven.

 

[romik]

Quote from volente_00:

That is a good point, So is scaling out still inferior if it is done at your initial point target ? In my example I told you of how I sometimes scale out at 2 points on ES and let the rest ride, Your example assumes that you scale out early every time before your point target is reached.

Hypothetically speaking, you have 10 2 lot trades running to 2 point target ($2000) and the rest can be anything ie average for the remainder can be +4 points or + 5 or +2 or +7, etc.

And once the threshold of the average +2 points for remaining position is broken, scaling starts beating "all out" PnL.

 

[volente_00]

Quote from Buy1Sell2:

While you would let the rest ride, I would be letting the whole trade ride. If my system tells me that it goes to 6 points 50 percent of the time, there is no sense getting out of any at 2 pts especially if the stop has been moved to breakeven.

Because 80-85% of the time I can get the sure 2 points multiple times per day. On a 6 point range day you will get nothing with that system.

 

[Buy1Sell2]

Quote from volente_00:

so answer the question,

Is scaling out inferior if you let it hit your profit target and then start to scale out ?




I understand your point about cutting yourself short and selling at only half your initial point target.

If the percentage of winners running beyond your profit target is great enough , then it would be an inferior system. If your initial profit target is where you have the best expectancy of maturity, then the whole position should be exited there and not gambled on beyond the profit target. If the run past the intial target is really where you should be exiting the position , then certainly scaling out is inferior. I would recommend finding at least a 3 to 1 Reward/Risk system. As defined by wareco in the ES Journal, you would only have to be right about 31% of the time to be profitable, while a 1 to 1 is about 62% (using commissions of .5 ES pts).

 

[thenewguy]

Quote from illiquid:

Scaling is all about finding a "better (aka current/updated) maturity area", only you are doing it in real time. What you are doing by scaling is placing greater weight on the results of recent trades, while giving less weight to the result of past trades (where the "optimal" exit has been calculated from) -- an analogy would be an EMA vs an MA on "maturity", so to speak.

Not true. If you scale out %90 of your trade at your target price and let %10 ride, where is the emphasis?

TNG

 

[ashcroftsinger]

Quote from Buy1Sell2:

This has nothing to do with you figuring out what is the best postion size. It assumes that you have already done your homework! Once you have your position size set and your system expectancy set, that's when my assertion kicks in. You trade whatever your position size is to it's maturity. You don't scale out unless you have defined a position size that is too large from the beginning and are afraid. That's it--don't make this too complicated.

B1S2: If I understand you right, you are saying one or more of the following

1. Position sizing should always be independent of market chararacteristics,
2. Attractiveness of a trade does not change once it is entered, and remains at the pre-determined level
3. Edge is derived only from entry and exit rules/ levels

Under any or all of the above assumptions, i can see your argument about all-or-nothing exits are valid. (then there is the issue of scale-in and the asymmetry of logic when it comes to scale out)

Since i disagree with all the three assumptions above, IMO scaling out can be a valid part of a system.

 

[thenewguy]

Quote from volente_00:

so answer the question,

Is scaling out inferior if you let it hit your profit target and then start to scale out ?




I understand your point about cutting yourself short and selling at only half your initial point target.

This is the crux of the problem. He's defining scaling out as selling on the way to the profit target, and we are defining it as trying to capture moves after the target.

TNG

 

[Buy1Sell2]

Quote from romik:

Hypothetically speaking, you have 10 2 lot trades running to 2 point target ($2000) and the rest can be anything ie average for the remainder can be +4 points or + 5 or +2 or +7, etc.

And once the threshold of the average +2 points for remaining position is broken, scaling starts beating "all out" PnL.

What is the percentage of the trades that are profitable past the 2 points. Once you know that, then a decision can be made as to whether or not the whole position should be exited there instead of really at the 2 pts. If the trades going past have a low enough winning percentage, it would make no sense to let the rest ride. If the percentage is high enough, then the whole position should be allowed to ride. Every trader must do their homework on their individual system to determine their entries and exits. Once that is developed properly, it makes no sense whatsoever to scale out.

 

[volente_00]

Quote from Buy1Sell2:

If the percentage of winners running beyond your profit target is great enough , then it would be an inferior system. If your initial profit target is where you have the best expectancy of maturity, then the whole position should be exited there and not gambled on beyond the profit target. If the run past the intial target is really where you should be exiting the position , then certainly scaling out is inferior. I would recommend finding at least a 3 to 1 Reward/Risk system. As defined by wareco in the ES Journal, you would only have to be right about 31% of the time to be profitable, while a 1 to 1 is about 62% (using commissions of .5 ES pts).

Problem is your trade does not come up nearly as often with that criteria. So would you rather get 2 points 5 times a week or wait for 10 points once a month ? Do you think it is just coincidence that the best S&P traders in the world focus on small points and large size ?
3 to1 is whole different subject. How do you think one's psychology handles having that many losing trades even if the one winner offsets the losses ?

 

[volente_00]

Quote from Buy1Sell2:

What is the percentage of the trades that are profitable past the 2 points. Once you know that, then a decision can be made as to whether or not the whole position should be exited there instead of really at the 2 pts. If the trades going past have a low enough winning percentage, it would make no sense to let the rest ride. If the percentage is high enough, then the whole position should be allowed to ride. Every trader must do their homework on their individual system to determine their entries and exits. Once that is developed properly, it makes no sense whatsoever to scale out.

It's not about the % rate, it is about how many points it averages. It can only be 30% but if it goes on to capture just 1 10 point move it becomes a viable strategy.