"Scaling out" is inferior behavior

[Buy1Sell2]

Quote from volente_00:

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.

How often can you get 6 points with a 2 point stop? How often can you get 8 points with a 2 point stop? How often can you get 9 points with a 3 point stop? These types of questions each trader must answer as they define their system prior to trading. This thread is not about that. It is about once a system is defined by the trader, does it make sense to scale out. Over time, the resounding answer is no.

 

[m4a1]

name some of these people?

Quote from volente_00:

Do you think it is just coincidence that the best S&P traders in the world focus on small points and large size ?

 

[romik]

EDITED SCALE OUT VERSION

50 % winning percentage 4 ES Contracts 20 trades 2 pt target 2 pt loss

1st example without scaling out

10 winners 2X(4 Contracts) = $80 pts ($4000)
10 losers 2X(4Contracts) = $80 pts (-$4000)

Net profit 0 before commissions


2nd example with scaling out half at 2 pt

5 winners 2X(4 Contracts) =40 pts ($2000)
2 breakeven X(4 Contracts) =0($0)
1 winner 3X(4 Contracts)=12pts ($600)
1 winner 4X(4 Contracts)=16pts ($800)
1 winner 10X(4 Contracts)=40pts ($2000)
10 losers 2X(4 Contracts) = -80 pts (-$4000)

Net profit before commissions=+$1400

 

[illiquid]

Quote from thenewguy:

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

TNG

The emphasis would just be 10% more towards the present trade, as opposed to relying 100% on the past "optimal" target.

The way I look at it, given the way I trade, (look ma no blanket) scaling is done in conjunction with a flexible outlook, as opposed to a closed, rigid one -- systemizing a scaling exit almost defeats the purpose in my opinion. You can argue ad infinitum comparing system A and system B, but that is besides the whole argument for me.

 

[volente_00]

Quote from Buy1Sell2:

How often can you get 6 points with a 2 point stop? How often can you get 8 points with a 2 point stop? How often can you get 9 points with a 3 point stop? These types of questions each trader must answer as they define their system prior to trading. This thread is not about that. It is about once a system is defined by the trader, does it make sense to scale out. Over time, the resounding answer is no.

That is whay your are advocating with 3 to 1.

The answer is with a 1 to 1, and a 2 point stop and scaling out half at 2 points gives you the chance to capture more points on the move while exposing yourself to zero risk if your are wrong while the all or nothing trader choices are to only get 2 points or expose their self the whole time to a monetary loss while trying to gain more than 2 points.

 

[volente_00]

Quote from m4a1:

name some of these people?

borsellino brothers , shwartz, can't remember the more recent ones but i have a buddy that worked in the pit at the CME until revco blew up and these were his words.

 

[Buy1Sell2]

Quote from ashcroftsinger:

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.

1. Position sizing should never be too large for a trader where the stop loss would exceed 2 percent of total liquid net worth. If you want to use smaller positions than that, fine. If you want to adjust your position size with the market on the entry signal that is fine, just don't exceed the 2 percent rule. Whatever the size that you use, the trade should be allowed to run to maturity. You would be better off long term trading only signals that allow you to use the same size or scale into the same size each time (per market).
2. Attractiveness of trades do change, but you rely on your backtesting to tell you what the percentage of winners is. If you see an obvious reversal while the trade is on, you exit fully not partially.
3. The only true edge in trading is capital and the management thereof. Entries and Exits are part of that management.

 

[Buy1Sell2]

Quote from volente_00:

That is whay your are advocating with 3 to 1.

The answer is with a 1 to 1, and a 2 point stop and scaling out half at 2 points gives you the chance to capture more points on the move while exposing yourself to zero risk if your are wrong while the all or nothing trader choices are to only get 2 points or expose their self the whole time to a monetary loss while trying to gain more than 2 points.

Whether or not 1 to 1 or 3 to 1 is a better strategy is not the discussion in this thread. It doesn't matter whether it's 1/1 or 3/1
when discussing scaling out.

 

[Buy1Sell2]

Quote from volente_00:

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.

exactly. and if that 30 percent with the 10 pt move may make it the actual place that you should be exiting the whole position instead of your initial target.

 

[Thunderdog]

Quote from volente_00:

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.

I'm inclined to agree. Based on my own experience, I am more confident in the initial momentum following my entry than I am with what follows as the trade progresses. However, that does not mean that I do not try to participate in what may follow. That's why scaling out makes sense to me.

B1S2 characterizes scaling out as "inferior." However, that conclusion is based on the assumption that larger moves can be "predicted" with equal confidence as smaller moves. I think that this fundamental assumption is flawed, which invalidates his belief regarding scaling out.

RESOLUTION: This is my final post in this thread.