"Scaling out" is inferior behavior

[Buy1Sell2]

Quote from 4re:

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

Thanks for the question Gary. I am going to give a response that may anger some, but is the correct response. An individual who is underfunded and /or overleveraged needs to drop down to markets like mini beans, corn or oats that have low face values or ETF's etc at 1to1 and trade for position until they get their grubstake built. If they are overleveraged in those markets , then they really need not trade until they can build their account by saving etc.

 

[Buy1Sell2]

Quote from whoispaul:


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.

This is in fact exactly right!

 

[4re]

Quote from Buy1Sell2:

Thanks for the question Gary. I am going to give a response that may anger some, but is the correct response. An individual who is underfunded and /or overleveraged needs to drop down to markets like mini beans, corn or oats that have low face values or ETF's etc at 1to1 and trade for position until they get their grubstake built. If they are overleveraged in those markets , then they really need not trade until they can build their account by saving etc.

Yes, you and I know this. I built my account by trading options. But we also know that this is not going to happen. I would say more people are going to trade with max leverage than not. So with these guys in mind would scaling out or even trailing stops be a viable alternative?

 

[Buy1Sell2]

Quote from 4re:

Yes, you and I know this. I built my account by trading options. But we also know that this is not going to happen. I would say more people are going to trade with max leverage than not. So with these guys in mind would scaling out or even trailing stops be a viable alternative?

Trailing stops, yes. Scaling out no. They really should not be in over their heads though, that's what causes people to scale out. No sense learning wrong and developing bad habits.

 

[whoispaul]

scaling out is just not a viable trading idea. again, you have to get out of your trade because your original reason for it has disappeared.

why stay in after that?

 

[4re]

Quote from Buy1Sell2:

Trailing stops, yes. Scaling out no. They really should not be in over their heads though, that's what causes people to scale out. No sense learning wrong and developing bad habits.

Ok, Just asking because I imagine quite a few people that could be reading this might be the ones I am talking about. I think most here know that I don't scale in or out. Nor do I trail my stops. I don't agree or disagree with any of these I just don't do it. Case in point. My options trade that I have been in since july was about .40 cents from my target this morning. I was hoping that it would hit today but just didn't make it. I have just about decided that since I have made very nice profit on it I might let it run anway or I could have gotten scared out of the position by this afternoons sell off. I am going to let it keep going until I have a clear signal to get out.

 

[romik]

Quote from 4re:

Ok, Just asking because I imagine quite a few people that could be reading this might be the ones I am talking about. I think most here know that I don't scale in or out. Nor do I trail my stops. I don't agree or disagree with any of these I just don't do it. Case in point. My options trade that I have been in since july was about .40 cents from my target this morning. I was hoping that it would hit today but just didn't make it. I have just about decided that since I have made very nice profit on it I might let it run anway or I could have gotten scared out of the position by this afternoons sell off. I am going to let it keep going until I have a clear signal to get out.

Hi Gary, but do you remember that CAL trade where my PT was different to yours, yours got hit and I decided to wait and instead of 28% profit ended up with something like 8%? Not certain at the moment. Both trailing and scale out would have provided a better ROI on that trade with my PT.

 

[4re]

Quote from romik:

Hi Gary, but do you remember that CAL trade where my PT was different to yours, yours got hit and I decided to wait and instead of 28% profit ended up with something like 8%? Not certain at the moment. Both trailing and scale out would have provided a better ROI on that trade with my PT.

Yeah, I guess I forgot that one but yes it did happen. Now I don't know how many times it would happen like that though. Maybe I got lucky I don't know. But yes trailing or scaling would have been better on that one. Personally I would favor trailing but either one would have been better.

P.S. I might be saying the same about my Q's trade if the market keeps going down

 

[thenewguy]

B1S2 I think you are forgetting to include probabilities in your calculations. Take a look at this:

scaling
contracts odds payout ev
1 0.9 10 9 %90 going to 10
1 0.01 11 0.11 %1 going to 11
9.11
all out
contracts odds payout ev
0 0.9 10 0 %90 going to 10
4 0.01 11 0.44 %1 going to 11
0.44


This is scaling out one contract at 10, letting the other run to 11. The second is letting the entire trade run to 11. I've used a %1 chance as an extreme measure to show the results. There is a point where your ev is higher letting the whole trade run, but it's a function of probabililty x payout.

TNG

EDIT: formatting sucks, looked good when i typed it in though...

 

[kut2k2]

Quote from Buy1Sell2:

Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.

--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.

I get two signals only: enter and exit.

If I get multiple enter signals, I scale in.

Once I get an exit signal, I'm all out -- nothing halfassed.

When you come to a stop sign, you're supposed to stop, not do a slow roll through it.

There's a very good reason for the old adage: Cut your losses short.