Quote from wave:
It is my belief that unless you have been fortunate enough to devise a trading system with precise mathematical and quantifiable rules, you will always succumb to scaling out. When you scale out, it is because you have not found the proper rules to keep you in a trade or position. Certain events should occur before starting or ending a trade or position and until those rules or events are solidified, you will have to resort to scaling out which I agree is inferior behavior as well. But without a decisive rule set, it is all most have to rely on to achieve profits.
Many traders, including I...have a decisive rule set to achieve profits via scaling out.
Just as important as mentioned
many times in this thread...
Most traders that scale out of positions also exit all at the same time when market conditions merits such.
Simply, it doesn't matter if you EXIT ALL or SCALE OUT or SCALE IN or ENTER ALL...
You can do such via decisive rule sets as you refer to.
As I said before, there really is not right or wrong way about exiting all or scaling out especially when you have traders doing both very effeciently or doing one more efficiently than the other.
The
behavior when most traders have real money on the line is that when they EXIT ALL at some profit target...
The trade is over with and if a new trade is initiated, it's often via a different reason in comparison to the prior trade entry.
Further, the
reality is that most (not all) traders that EXIT ALL will not adjust their profit target to a bigger profit target when market conditions change in favor of such.
That's a behavior that can't be overlook unless you only want to talk about theory.
In contract, and in reality when a trader SCALES OUT...its most likely because the trader has recognize that market conditions has changed and decides to get
greedy while wanting to ensure there's a profit via exiting a portion of the position at the original profit target.
Simply, this thread shows (arguably) via math its best to EXIT ALL.
However, in reality (there's a few old journals as fact to this)...two traders using the same method with the same initial profit targets...
The trader that scales out will do so ONLY when market conditions merits for such.
Simply, traders that scale out also EXIT ALL when market conditions merits such.
Therefore, real behaviors is much different than mathematical theories.
Reason why backtesting results are different to real trading results...
Something many newbie traders find out the hard way.
Also, I've actually study different traders using the same strategy (entry rules) while some scaled out when merited while others didn't scale out.
The traders that scaled out performed better.
Reality...not theory.
However, if neither used a good rule based method for such...
Both underperformed in comparison to those that used a good rule based method for such.
Summary:
* Scaling Out is an inferior behavior only when market conditions merits exiting the entire position at the same time.
* Exiting ALL is an inferior behavior only when market conditions merits scaling out the position at new profit targets.
Once again, both of the above can be managed via a decisive rule set.
Mark
