"Scaling out" is inferior behavior

[jem]

I was discussing something that anyone who has every spent some time designing systems understands. The larger your profit target the greater your risk of drawdown. (overall). If you have some entry that has a non-linear payoff - we are probably not talking directional trading. ( I understand there may be exceptions to linear payoffs - such as the way turtles scaled into winning moves. Which I think was a brilliant way to try gain edge. Scale into winning movers faster than the market can degrade a signal. )

buy1


Have ever tested entries and exits.

have you done work the maximum favorable excursion and mae.

Do you understand the results.

 

[NihabaAshi]

Quote from jem:

I was discussing something that anyone who has every spent some time designing systems understands. The larger your profit target the greater your risk of drawdown. (overall). If you have some entry that has a non-linear payoff - we are probably not talking directional trading. ( I understand there may be exceptions to linear payoffs - such as the way turtles scaled into winning moves. Which I think was a brilliant way to try gain edge. Scale into winning movers faster than the market can degrade a signal. )

buy1


Have ever tested entries and exits.

have you done work the maximum favorable excursion and mae.

Do you understand the results.

Been there and done that via the testing route.

However, I do strongly disagree with the following statement for swing trading or position trading market seasonal tendencies (cycles).

...The larger your profit target the greater your risk of drawdown. (overall)...

I know, that's off topic and I'll leave again.

Mark

 

[jem]

no mark - don't disappear I don't mind being challenged. I suppose you are saying that if the cycle holds (or perhaps if the cycle does not hold you are just as likely to get 5R as 4R. That would be very interesting.


thanks.

 

[JSSPMK]

I think what has to be taken into consideration is, which I believe perviously mentioned by Buy1Sell2 though not directly, that he is a multi millionaire, though trading only 10% of his net worth, I think he would have a different view if:

1. He had a 5 digit trading account;
2. Was driven by fast turnaround trading 1 and 2 minute charts;

 

[buy2sell1]

If you are a daytrader - scaling out is a MUST. Markets go up & down as a yoyo.

 

[Rearden Metal]

Someone tell me, how exactly am I supposed to unwind a position like 30,000 shares long EFUT or JRJC, without scaling out?

I always scale in and out, out of necessity- and I'm kind of surprised that this puts me in the minority here.

 

[MGJ]

Here's a bit of data on Scaling Out. It's a backtest of a mechanical trading system operating on a portfolio of 90 futures markets, without Scaling Out (labeled "BEFORE") and then with Scaling Out (labeled "AFTER"). The system is fairly long term, holding positions for several months.

Perhaps of note are the changes to

• Number of Trades: increased from 1317 to 2444 (each exit is considered to be its own trade)
• Winning Percentage: increased from 46% to 71%
• Total Profits (shown as Compound Annual Growth Rate, CAGR%): unchanged
• Max Drawdown: decreased from 42% to 25%
• Profit Factor: decreased from 3.54 to 2.71
• Expectation Ratio (average trade profit / average trade risk): decreased from 1.28 to 0.42
• Sharpe Ratio: increased from 1.28 to 1.43
• MAR Ratio (CAGR% / MaxDD%): increased from 0.73 to 1.07.

 

[Hook N. Sinker]

Quote from MGJ:

Here's a bit of data on Scaling Out. It's a backtest of a mechanical trading system operating on a portfolio of 90 futures markets, without Scaling Out (labeled "BEFORE") and then with Scaling Out (labeled "AFTER"). The system is fairly long term, holding positions for several months.

Thank You MGJ.

 

[NihabaAshi]

Quote from Rearden Metal:

Someone tell me, how exactly am I supposed to unwind a position like 30,000 shares long EFUT or JRJC, without scaling out?...

Your talking about real trading situations.

The thread starter said many times this discussion is not about what actually happens in real trading situations.

Simply, not scaling out looks great on paper in comparison to scaling out.

However, in reality (real trading conditions)...

It's a completely different story and scaling out will always by superior during certain trade situations.

Another way to look at, there are times when exiting all at once is appropriate and there are times when scaling out is appropriate...

However, as I said before, thread starter said that's a discussion for elsewhere.

Mark

 

[illiquid]

Wow this thread is still alive . . .