"Scaling out" is inferior behavior
- Thread starter Buy1Sell2
- Start date
I can presume to know what a typical Trader A is like in real money trading along with the fact I've personally traded with the Trader A types and the Trader B types.
However, I do not presume to know what type of trader you are.
Yet, in theory or backtesting...I'm not surprise to hear that Trader A outperforms Trader B.
Mark
New, if you are using profit targets and the probability is not high , then the wrong profit target is being used and should be lowered. Your backtesting should give you the correct profit target that hits with good probabiity. At that point, you don't scale out, you just let it run to the target. After all, you have tested and found that the target is your optimal target in terms of percentage-- If the target that hits 70 percent of the time is 6 points, then don't pull the plug at 5 points. That's all that is being said here.
Mark, your presumption of what is in his head is not germane here though because we are discussing math and not a trader's abilities except to say that scaling out as a practice is an inferior behavior. Your discussion of trader A's habits may be a good one and subject of another thread, but it does not have it's place here in discussing that both traders had the same opportunity to engage in the same math.
The main thing is that scaling out is an effort to make every trade a winner by reducing exposure as the trade moves in your direction. With backtesting we come up with a probability expectation , be it 30 percent or 70 percent, yet when the trade is on we try to make it 100 percent instead of relying on our homework. It's best to just take some losses and let the others run/work.
Very nicely said.
This is truly the heart of the matter. As Eckhardt points out, we all have a strong tendency to focus too much on the current trade we are in, and, ANYTHING that we do to keep the current trade from turning into a loss (eg. scaling out) almost invariably acts to reduce the overall profitability of our system.
Cheers.
You are discussing math and I am and others in this thread are discussing what actually is occurring.
That's the difference here.
I'm giving you facts about my personal experience with the typical Trader A and the typical Trader B...
No theories, no backtesting...actual math of real trading.
Your thread title is "Scaling Out" is inferior behavior.
You are talking about a behavior.
Simply, you dismiss what's actually occuring while still trying to discuss the behavior...there's a contradiction there.
With that said, I've agreed many times with you about the math theories of scaling out versus not scaling out.
However, if you choose not to discuss the actual behavior that's occuring in real trading...
That's your choice and I will leave you alone now to only discuss the math aspects of scaling out versus not scaling out.
Mark
No, that's not true. Did you look at my attachment? "be it 30 percent or 70 percent" is incorrect. EV is your profitability of the system overall, it is not dependent on one variable alone. Simple math, as you like to put it. The profitability of scaling out solely depends on your probability of your profit targets AND the payout of those targets. It has nothing to do with what we are "trying to make the trade" become. It's purely math.
Now, if you were to argue that a system with a %30 probability of hitting it's targets is silly, then you have a case for not scaling out. But simply to say it is "inferior" to scale out is mathematically wrong.
- TNG