"Scaling out" is inferior behavior
- Thread starter Buy1Sell2
- Start date
Good question, so I'll give it an honest answer.
I've been using a 2pt profit/1 tick protective stop on the 2nd half of my contracts type of trading for a couple of years now.
The math would get funky after a couple of losers, but I knew that in the long haul I would be "OK".
It's taken a long time and a lot of work, but I figured that if I could:
a) just take my licks (when the protective stop gets hit),
b) "get over" having a smaller range day give me less profit (smaller profit day) and;
c) strive to catch the bigger move (extended range day) I would do very well on a weekly/monthly basis.
I've seen these extended range days develop time and again (we've seen a ton of 'em with this bull run, and I promise you, we will see a ton to the downside too), so I was confident before this thread that this method would yield better results, now I know.
Regards,
JJ
If you enter a position based on a setup or reason then you stay with the trade until this reason disappears or changes. Only then do you close your position. right?
So if you retain part of your trade its not based anymore on your original setup but just based on the hope that your position may further improve. At this point the basis of your trade is just hope and emotion.
Trades based soley on emotion have a negative expectancy as we all know, probably the reason why 90 % loose.
Same goes for averaging down. If you average down just to save your ass in a bad position the original reason for entering the trade is violated. It also tends you to close out the position as soon as you as you might break even and not ride out the position as originally planned.
So if you retain part of your trade its not based anymore on your original setup but just based on the hope that your position may further improve. At this point the basis of your trade is just hope and emotion.
Trades based soley on emotion have a negative expectancy as we all know, probably the reason why 90 % loose.
Same goes for averaging down. If you average down just to save your ass in a bad position the original reason for entering the trade is violated. It also tends you to close out the position as soon as you as you might break even and not ride out the position as originally planned.
Your statement is too broad to be entirely valid.
For example the ES under high volume can move 5 -6 points very very quickly and if you take half your position off the table and bring your stop into profit, then you can wait for the second leg of the trade to move or die.
And so in effect you have a 2 act trade with two sets of probabilities. One must play out before the other is revealed, if at all.
You are betting that the second leg will net more points, over time, than the difference between your first target and your second stop. My experience is that this does happen but quite frankly I do not bother with it any more. Lot size is the name of the game to making money and fiddling with a trade that is all over within minutes is just that ... fiddling
yes if you think entirely in probabilities this might be true. yet, by legging out, one of your position will always be wrong.
however, i am restricting myself to position trading and entering and exiting is based only on the original setup or reason. this also helps a great deal in removing anxiety when the position moves in the wrong direction.
most losing decisions are made in the face of adverse conditions based on emotions. by sticking with your original setup you dont have to live thru the agony of this.
however, i am restricting myself to position trading and entering and exiting is based only on the original setup or reason. this also helps a great deal in removing anxiety when the position moves in the wrong direction.
most losing decisions are made in the face of adverse conditions based on emotions. by sticking with your original setup you dont have to live thru the agony of this.
B1,
I have a question. You are saying that scaling out is inferior and is basically a by product of being under funded and over leveraged. Since a lot of traders cannot help the fact that they are underfunded they work with what they have. In their situation using sometimes maximum leverage would scaling out and saving yourself from having a heart attack be the right thing to do? I know I am going overboard with the heart attack but you know what I mean.
Now I know the smart thing is to reduce your margin and be safe but most people want their money and want it now. In their case maybe scaling out would be the best fit for them. Not saying the most profitable just the best fit.
Gary
I have a question. You are saying that scaling out is inferior and is basically a by product of being under funded and over leveraged. Since a lot of traders cannot help the fact that they are underfunded they work with what they have. In their situation using sometimes maximum leverage would scaling out and saving yourself from having a heart attack be the right thing to do? I know I am going overboard with the heart attack but you know what I mean.
Now I know the smart thing is to reduce your margin and be safe but most people want their money and want it now. In their case maybe scaling out would be the best fit for them. Not saying the most profitable just the best fit.
Gary