"Scaling out" is inferior behavior

Do you scale out of positions?

  • I always scale out

    Votes: 113 14.1%

  • I scale out most of the time

    Votes: 228 28.5%

  • Most of the time, I do not scale out

    Votes: 189 23.6%

  • I never scale out

    Votes: 270 33.8%
  • Total voters
    800
Quote from Buy1Sell2:
I view daytrading and trading at the open as inferior behavior as well.

LOL, geez, I guess those darn Specialists have been "inferior" at making money for 200 years, and I guess hundreds of my successful traders are "inferior" - the "gurus" (who rarely trade, just write books and spout nonsense) who say "wait for the market to be open a half hour or hour to see the direction" - are boneheads, IMHO. The whole "buy only" "pick new stocks each day" directional trading is "inferior" IMO.

BTW, "daytrading" is just a small part of successful trading plan.

FWIW,

Don
 
Yes daytrading is inferior to swing and position trading --there is no question about. 95% percent of daytraders fail, where the number on swing/position is around 85% failure. Now obviously , there are people who are market makers and specialists, and many of those are profitable, but that is not the vast majorityof traders including myself. Those specialists as a whole would also be more profitable by not daytrading. ie if they were position/swing traders. Obviously, they are there serving a need (liquidity). Remember, I never said that a person could not be profitable using these methods, it's just that it is inferior to other methods. It flies in the face of rule number one which is cut losses short and ride winners. Reading a lot of the opposing views here has reinforced my understanding of why my method is the best when everyone is looking at the same data.
 
There is a lot of emphasis placed on having a system that is right x percent of the time. That is given out and touted as a system that is a winning system. The fact is though that if that system creates small winners and losers of any size, small or large, that system is inferior. Scaling out is one of the main factors that will cause small winners. --When a potential trader does backtesting before beginning a trade or strategy, you will always see where that trader considers that if I would have bought at x and sold at y, the trade would have been profitable by z. Here's the failing in that thinking--most traders start scaling out and taking profits well before the profit target or reversal happens and this ends up leaving money on the table. So, the rigorous backtesting then needs to be thrown out, because it is violated by emotional removal of some of the trade. Very very few traders adhere to rule number 1 in trading/investing--"Cut losses short and let winners ride"

--Remember-- you can be profitable by scaling out, just not as profitable as you would be by riding the winners. ---
 
Quote from Buy1Sell2:

Yes daytrading is inferior to swing and position trading --there is no question about. 95% percent of daytraders fail, where the number on swing/position is around 85% failure. Now obviously , there are people who are market makers and specialists, and many of those are profitable, but that is not the vast majorityof traders including myself. Those specialists as a whole would also be more profitable by not daytrading. ie if they were position/swing traders. Obviously, they are there serving a need (liquidity). Remember, I never said that a person could not be profitable using these methods, it's just that it is inferior to other methods. It flies in the face of rule number one which is cut losses short and ride winners. Reading a lot of the opposing views here has reinforced my understanding of why my method is the best when everyone is looking at the same data.
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Professional trading, for a living, requires the use of (at least) a $million or more to use in working strategies (M&A, pairs, $$index hedging, opening only orders (with the Specialist), MOC's (with the Specialist, not against him), and "day" trading is simply providing liquidity.

To quote the "Nation's number one daytrader" (who is not "just" a daytrader by any definition) says to our new people. "There are only two ways traders ever make money: Providing liquidity and finding market inefficiencies and disparities". And, correcting the disparities of course.

By your definition, I guess all retail traders are "inferior" to professional, licensed traders who do this exclusively, right?

I guess that I just have trouble with the word "inferior" - after all, a "swing trade" is just a day trade gone bad usually. If you made $5,000 or $10,000 the same day, you would probably close the position.

(And, yes, "it just keeps getting better" LOL )...

Again, just my thoughts....

All the best,

Don

And There is NO SYSTEM everything needs constant attention and tweaking...strategies and techniques, yes, system, no. And I've seen hundreds.
 
Most folks in the thread miss the simple point that I am making. This is probably due to hair on the back on the neck pricking when they read the word inferior. I am not maintaining that the people who scale out are inferior people. Quite the contrary, they are probably very right upstanding individuals. What I am saying is that the practice of scaling out is inferior to not scaling out. That is all. There are many strategies and systems that can be employed, however there is only one correct way to trade and that is cutting losses short and riding winners. --:)
 
I recently entered a trade by selling in front of a very large offer on the yen for the third time today.

I have no idea how far the trade will go in my favor. I have scaled out multiple times and gotten back in. I have banked nice profits and am now short at a slightly better price than I had on my first short.

You are now proven to be wrong with real yen/ dollars.
 
Quote from Buy1Sell2:

...What I am saying is that the practice of scaling out is inferior to not scaling out. That is all. There are many strategies and systems that can be employed, however there is only one correct way to trade and that is cutting losses short and riding winners. --:)
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Trader A and Trader B uses the same strategy and have the same profit target.

Both are profitable traders and trades mainly 3 contracts per trade.

However, Trader A strongly believes and applies in real trading to exit the entire position when it reaches its maturity (profit target).

Trader B strongly believes in scaling out and applies it in real trading to scale out of the position after it reaches its maturity (profit target).

Trader A:

Long Signal in ES @ 1385 with a target of 10 points.

Trader B:

Long Signal in ES @ 1385 with a target of 10 points.

Here's the most common scenario of real trading...

ES hits 1395 and Trader A will dump the entire position for 10 points per contract for a grand total of 30 ES points.

Excellent trading.

However, Trader B is more flexible than Trader A because scaling out puts the trader in the position to take another look at the price action.

Trader B decides there's more follow through for what ever reasons...

Exits one contract at 1395 for 10 ES points and sets a new profit target and risk parameters for the remainders.

Market moves to the new profit target for the second contract and exits at 1400 for 15 ES points while keeping open the position with one contract due to more favorable price action.

Trader B sets a profit target for the remainder contract at 1410 with a new risk parameter.

ES hits 1410 and the remainder contract is exited for 25 ES points.

Doing the Math -

Trader A believes scaling out is inferior...

Profit of 30 ES points.

Trader B believes theres are times when one should exit all and other times when one should scale out...

Profit of 50 ES points.

I just want to show that there are times when scaling out will out perform those that don't scale out.

The reality is that the psychology of a trader that doesn't scale out...

That trader will tend to not adapt the profit target and will exit when that target is reached.

There's a well documented journal of such here at ET that contains typical trading problems associated when someone applies that all the time (no scaling out).

Traders that tend to scale out when it merits for such...they tend to make more profits because they adjust there trade management after entry when they see conditions improving.

Now, if we are talking about someone exiting a position before profit targets are reached because they had fear...

That's a completely different situation and has nothing to do with scaling out.

My point, I've seen traders that exit all at once prior to profit targets because of fear.

However, I rarely see a trader that tends to scale out to scale out of a position prior to its profit target because of fear due to the fact that they too tend to scale out when they have fear.

Therefore, although you didn't imply such, scaling out does not imply the trader has fear...

A profitable trader that scales out has greed.

Fearful traders tend to exit all at once regardless if their initial goal was to scale out or not.

I've met hundreds of traders and the above is typical trading of those that scales out and those that don't scale out.

I also notice that traders that don't scale out...

They tend to hold on to a profitable position that's retracing until their profitable trailing stop is hit...

Its a profitable trade but it didn't reach the target.

Whereas a trader that scales out, they tend to not hold on to the trade as long and will dump it all (not scale out) at a better price than the trader that doesn't scale out.

Simply, Trader A tends to get married to the position until the profit target is reached or a reversal signal appears.

The main problem for Trader A is what to do when the profitable trade retraces without a reversal signal.

The problem gets worst if Trader A uses fixed profit targets as in a fixed risk:reward ratio regardless to the time of the day, regardless to the volatility levels, regardless to what's moving the markets that day.

Trader B tends to scale out after the profit target is reach or exits all when the profit target is not reached (better trade management after entry).

Also, Trader B tends to high more commissions than Trader A.

Your experiences are most likely different but the above is the typical experience I've seen in the trading habits of other and in my own trading.

I scale out and have no problem with exiting ALL for the following reasons:

* Reversal Signal

* Breaking News that I expect to have a negative impact on my position

* Trade Error

* A few minutes before the closing bell

To only do one or the other (scale out or all at once) may be what really is inferior.

By the way...

There's a difference between someone that scales out before the profit target is reached versus someone that scales out after a profit target is reached.

P.S. I've been very greedy these past several trading days.

Mark
 
Quote from Buy1Sell2:

http://www.rightline.net/education/battle-of-exit-strategies.html
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The article presents a different type of trader that scales out in comparison to the Trader B example in my prior post.

I strongly believe my Trader B represents a typical profitable trader that scales out versus a typical profitable trader that doesn't scale out.

Comparing a profitable trader that doesn't scale out to a profitable trader that does scale out.

However, the articale at the above link is talking about a trader that scales out prior to a profit target (my interpretation of the article).

Comparing a profitable trader that doesn't scale out to a losing trader that does scale out.

This is the trader I believe you refer to as having fear and I strongly agree with such.

However, the typical trader I've met that do scale out...

If they exit the position prior to a profit target and with fear, they tend to exit all and not scale out.

The article assumes they will scale out of a losing position or scale out of a position that didn't reach its profit target.

The above is not typical in my opinion because that type of fear tends to cause the trader to dump it all (typical of a losing trader) and not scale out.

With that said, I've heard about traders that scale out of a profitable position that hasn't reached a profit target.

I've also heard about traders that scale out of a losing position.

I've heard about these traders but I've never actually met one of those types of traders.

Therefore, they do not represent to me the typical trader and they are a minority.

They typical profitable trader tends to scale out at better prices in comparison to the same profit target as a profitable trader that doesn't scale out.

A typical profitable trader will dump it all if a profit target is not reached regardless if they scale out or not.

A typical losing trader will scale out of a profitable trade prior to profit targets being reached.

A typical losing trader will dump it all (no scaling out and very typical) of a losing trade.

The article assumes a typical losing trader that scales out prior to profits will also scale out of a losing trade (not typical but these traders do exist).

Mark
 
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