The notion of "scared money" in this context is a fairly naive one. Anyone can take on the role of "deep pockets" by simply being very underleveraged, regardless of his size. The overall performance results will reflect this. Similarly, if you use leverage to your advantage, then you will respect both sides of it, also regardless of your size.
"Scaling out" is inferior behavior
- Thread starter Buy1Sell2
- Start date
I am most perplexed by your rigidity...
Perhaps it is a simple misunderstanding....
As a simple example,let us use a variable ATR profit target.The only choice would be to scale out,or close the position.I can almost assure you that if you run an optimisation of the amount to scale out you will find various scale out percentages that outperfrom full liquidation at the pre set ATR profit target.Its simple common sense as well as curve fitting...
That alone theoretically negates you "absolutism"...
In the real world,we know the markets are dynamic,volatility changes and our profit levels/scale amounts change. There will be a new optimised scale factor which will replace the old one and that too will appear to be "optimal"...
With all this said,from all the extensive testing I have done,there is no clear answer to this 127 page debate.The market is too dynamic a beast to have one method prevail.It is truly a case of 6 of one/half dozen of another...
Whether you like it or not,scaling vs full liquidation is simply a market call.If you claim with all certainty that you should liquidate 100%,then you should reverse from long to short as opposed to just exiting.Your implied claim that the remaining scaled position offers negative expectations relative to 100% liquidation clearly requires you to be in a "stop and reverse" trading scenario.
With that said,you believe in always being in the market,full liquidation and reversing direction upon exits....
Sounds awfully familiar. I referred to a "scaled out" trade in a previous post:
As stated previously, the "scaling out" vs. "discrete trade" designations are merely an exercise in mathematically equivalent nomenclature. Exiting a trade in 2 or more discrete steps is properly referred to as "scaling out" - the trader's justification for this action is wholly irrelevant to the definition thereof.
I'm sure that Mr. Quant will be grateful that you have indirectly acknowledged his trading methods.
You'll notice that Mr Quant did not take half his position off during your first expectancy calculation. It was only when a recalculation was done, that a different position size was taken. That is two different trades with two different parameters. That is the essence of my assertion--ie when you take a trade, let the trade run to full maturity. Don't miss the point of this thread. Trades can be on time frames of one minute etc, but the need to be allowed to run.
Quote from Buy1Sell2:
You'll notice that Mr Quant did not take half his position off during your first expectancy calculation. It was only when a recalculation was done, that a different position size was taken. That is two different trades with two different parameters. That is the essence of my assertion--ie when you take a trade, let the trade run to full maturity. Don't miss the point of this thread. Trades can be on time frames of one minute etc, but the need to be allowed to run.
AHA!!!!
So if you put a trade on and then take half off when a profit is available, that's not scaling out, it's 'two trades'!!!
600 pages and in the end you were saying nothing at all. At least you have the decency to call what you are saying 'assertion'. It is truly that.
ET just never ceases to amaze me....