"Scaling out" is inferior behavior
- Thread starter Buy1Sell2
- Start date
If you understood what he wrote, you would not have written this.
Read it again. [Hint: exits are nothing more than another system, given the name "exit". Language often confuses.]
The key difference is dependency (mathematical dependency) since scaled exits with only one system know where the system got in, what it's PnL looks like, etc, which alters the distribution of returns. But if you made the "scaling out system" into an independent system that knows nothing of the entries of any other system, then "scaled exits" (because you now have two systems instead of one, one of which looks like it is scaling out of the others position) would be entries for that system and not "scaled exits".
It is confusing, but it is 100% logical.
nitro
Correct. And there is nothing wrong with that as long as each system (entry time frame etc) is allowed to run to maturity on each trade. The issue that I have is that when we make an entry on a particular time frame etc., then we should let that trade run to it's full extent whether that is a profit target or a stop out etc.
Certainly. The principles of trading are exactly the same, no matter what time frame. Let winners run, cut losers short, trade with the trend. If maturity for you on an ES 1 minute chart is 3 ticks, then exit all positions at 3 ticks. Don't exit 1 at 1,. 1 at 2 ,and 1 at 3. That's scaredy cat trading.
Quote from Buy1Sell2:
Certainly. The principles of trading are exactly the same, no matter what time frame. Let winners run, cut losers short, trade with the trend. If maturity for you on an ES 1 minute chart is 3 ticks, then exit all positions at 3 ticks. Don't exit 1 at 1,. 1 at 2 ,and 1 at 3. That's scaredy cat trading.
OK, in that case what would you have said about a trader that managed to generate larger gains by scaling out? Still inferior? Or are you referring to theoretical comparisons?
Quote from Buy1Sell2:
Certainly. The principles of trading are exactly the same, no matter what time frame. Let winners run, cut losers short, trade with the trend. If maturity for you on an ES 1 minute chart is 3 ticks, then exit all positions at 3 ticks. Don't exit 1 at 1,. 1 at 2 ,and 1 at 3. That's scaredy cat trading.
B1S2 - another excellent topic, thank you.
I agree that scaling out is inferior (for almost all systems, including mine).
However, I still scale out. The reason I scale out is because I've worked more on my system on *entries* than on exits. I believe entries are the most important part of being a profitable trader. If you don't get the entry right, you'll get stopped out before you get the chance to make money. Once I have my entries down cold, I will be able to work on getting my exits correct and not scale out to early. This will move me from being a profitable trader, to a very successful profitable trader. Until I get there, I plan to continue to scale out.
If I had a multimillion dollar portfolio, I wouldn't trade this way at all. I would just be a writer of options and take very low risk trades.
this is so silly.
If you don't understand that there are no guarantees of full maturity going forward and that it is better to trade in a manner that promotes a smoother equity curve - you are not a battle tested trader who understands what it takes to make a living or or you are trading OPM and don't give a crap.
If you are trading your own money the only smart way to trade is with an edge while minimizing risk of ruin.
If you don't understand that there are no guarantees of full maturity going forward and that it is better to trade in a manner that promotes a smoother equity curve - you are not a battle tested trader who understands what it takes to make a living or or you are trading OPM and don't give a crap.
If you are trading your own money the only smart way to trade is with an edge while minimizing risk of ruin.