"Scaling out" is inferior behavior

[EdgeHunter]

Quote from Joab:

I actually started to agree with your post till you quoted the knucklehead.

I have scaled out 1/2 most of my career but I'm now thinking it may not have been the smartest way to trade.

I'm actually going to experiment with keeping all till my 2nd targets and see if that works better.

I don't have the balls to scale in

"Quoted the knucklehead"... Joab, that's being overly kind to Bush who has committed war crimes... <br>and will someday answer to a higher power for them if not hopefully in a real court here on Terra Firma some day...

anyway...

B1S2 Math all falls apart as i have detailed in earlier posts...

His simplistic math does not take into account the play of liquidity at any level...

Old hands trading for years intuitively get a feel for the market with the amount of volume being traded in a day...

If the volume is high lets say over 60% or 70% then you, they, anyone can feel it and know to hold trades until a complete dump of all contracts at whatever point you decide is the Holy Grail point..

But if its thin for that market that day... 20% or less than average volume or a touch more or less... than scaling is more efficient... because of the less than likely reality of hitting specific targets...

Dynamic math, not simple black and white math is what works in the real world...

Same as Newton's simple math was replace by Quantum math and linear science was replace by Chaotic Science (Fractals, Scales, Scaling !!) as in real life, in the real world...

that's why scaling is intuitively done by the best traders and not the black and white flat earth world of all at once every time by Job method...

God Bless Tiny Tim... where ever he is...


<img src="http://www.enflow.com/p.gif">

 

[volente_00]

Quote from Buy1Sell2:

In your example, I noticed that the scaler is getting the benefit of 80 percent of setups going as far as 9 points, but the non scaler's trades only go to 9 points 30 percent of time. Certainly the non scaler's trades would move 9 points 80 percent of the time as well.

Add 0's to the end of all points to represent a swing trader and get back with the answer.

 

[volente_00]

Quote from smilingsynic:

If no one knows exactly what the market is going to do, then why scale out? Why not sit tight until a trailing stop takes you out, thereby affirming change of trend?

Because by scaling out at what you think may be the optimal exit point, you book a sure profit on the trade and in doing so have a higher win rate than those who don't scale out and let the stop go back to break even or even worse the original max loss. I've already shown how the scaler outer will have a higher win rate with a lower point gain versus the non scaler.

 

[smilingsynic]

Quote from volente_00:

Because by scaling out at what you think may be the optimal exit point, you book a sure profit on the trade and in doing so have a higher win rate than those who don't scale out and let the stop go back to break even or even worse the original max loss. I've already shown how the scaler outer will have a higher win rate with a lower point gain versus the non scaler.

I have no problem with scaling out at the target (I do not think there is such a thing as "optimal exit point"). If one has a six point target with a three point stop (I won't trade the ES right now for anything less than a 3 point stop), then by all means take some off the table at six and leave the rest to ride.

As for sure profits, taking small profits when price action at the moment is suggesting large profits are likely is a poor strategy. If price action says it's time to get out, then get out.

 

[FanOfFridays]

Quote from Buy1Sell2:

The math doesn't care what type of system is used. Scaling will always provide an inferior result over the long haul due to the simple fact that when the full target is hit, the full position is not on to reap the full benefit.

Exactly. And all you need in order to know when the 'full target has been hit' is your special Acme Crystal Ball. Because that's what B1S2's 'full target' is - it's a euphemism for the optimal exit point, which he claims is known before the trade is placed. After all, every one of us knows that if your target is hit, there is ZERO chance that the market will continue on your direction.

He knows the optimal exit point for every trade before it is placed because he has done an analysis of trades with 'similar looking' setups and feels that he can generalize those setups to the future and know precisely when a market will go up xx points and no more.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1856284#post1856284

Of course, this is absurd.

It has been shown clearly in this thread that scaling out is the superior exit strategy in several different trading situations. The best example was given by RM (and others), who pointed out that if you are carrying a large position, dumping all your holdings into the market at once will produce inferior results.

Quote from Moneyball:
This isn't going to get very far if you continue to just respond to very small parts of posts while ignoring the bulk of them..

How else is he supposed to defend his position? If he dealt with the entire post it would soon become clear that his hypotheticals don't have much relevance in the real world.

Quote from Moneyball:
Do you really think you can precisely determine the optimal entry and exit points in advance, using backtesting or any other methods?

The entire argument is based upon this (false) premise, which he is now trying to alter because he realizes his original assertions are unsupportable. .

 

[JSSPMK]

Buy1Sell2, ImO intraday & ouataday trading are 2 different animals. Intraday price action in index futures has a lot of knee-jerk where momentum action is often faded in an attempt to perform a shake & squeeze. People have to adapt to their trading environments just as they would have to adapt if their living environment was to be changed, what was superior in place A is not so in place B. I agree that from purely theoretical POV you are correct, but considering intraday is noise to daily chart's price action, one has to learn to adapt to this environment. There are plenty of days when a trader that scales out may make more $ than a all in/out trader, in which case how can that be classed as inferior?

 

[Buy1Sell2]

Quote from volente_00:

2 contract traded per trader

SCALER
10 trades

8 winners

1 x 4.5 points for half the position
1 x 9 point for the other half


2 losers for 3 points each


NONSCALER
10 trades

3 winners for 2 contracts x 9 points each

7 losers for 2 contracts x 3 points each

Here is the correct math on your example Vol.

2 contracts traded per trader

SCALER
10 trades

8 winners

1 x 4.5 points for half the position
1 x 9 point for the other half


2 losers for 3 points each


NONSCALER
10 trades

8 winners for 2 contracts x 9 points each

2 losers for 2 contracts x 3 points each

 

[Buy1Sell2]

Quote from JSSPMK:

Buy1Sell2, ImO intraday & ouataday trading are 2 different animals. Intraday price action in index futures has a lot of knee-jerk where momentum action is often faded in an attempt to perform a shake & squeeze. People have to adapt to their trading environments just as they would have to adapt if their living environment was to be changed, what was superior in place A is not so in place B. I agree that from purely theoretical POV you are correct, but considering intraday is noise to daily chart's price action, one has to learn to adapt to this environment. There are plenty of days when a trader that scales out may make more $ than a all in/out trader, in which case how can that be classed as inferior?

The discussion is not outraday versus intraday. The math works the same on all timeframes.

 

[Buy1Sell2]

Quote from hilojack:

I'm not going to read every post in this thread, but the bottom line is this: size players scale out, pikers do not. It is nearly impossible to pick absolute tops or bottoms, size players use areas of accumulation and dispersion, not trying to hit exact figures. Also to consider is the timeframe that one is trading in, typical length of trade, and overall methodology. To each their own.

You've missed the entire point.
Piker?-- No

 

[JSSPMK]

Quote from Buy1Sell2:

The discussion is not outraday versus intraday. The math works the same on all timeframes.

I am not bringing in intra vs outa, that was just a prelude

What I am saying is that on certain days a scaler would be banking more $ in comparison to an all in/out trader. A scaler has an option of holding for an extended gain whereas an all in/out trader does not have that option. The 2 traders can not be compared. That is as simple to understand as your suggestion.

Therefore, if a scaler makes more $ today than a all in/out trader that makes his method a winner today ie a superior one

Here's my hypothetical example:

Scaler's performance -

Scaled 2/3 +2/stopped 1/3 b/e
Scaled 2/3 +3/stopped 1/3 b/e
Scaled 2/3 +2/stopped 1/3 b/e
Scaled 2/3 +3/closed 1/3 b/e

Total gain: $$$

Non-scaler's performance -

Exited full position +2 EOD

Total gain: $

Please keep in mind that both traders are trying to get +10

Some days all in/out will be superior