"Scaling out" is inferior behavior

[smilingsynic]

Quote from JSSPMK:

Excellent point, but how do you establish what's more profitable? Scaling & trailing methods vary, so do trader skills. Also market conditions vary all the time.

Scaling out is a form of having a profit target, and just about every system I have written does worse with profit targets than it does with trailing stops.

Scaling out will tend to leave one underexposed on exceptionally large moves. Nevertheless, it feels better to scale out, because more often than not, it will make you more.

Not scaling out is counterintuitive, which is why it works.

Of course, there is an art in trailing stops. When it comes to intraday trading especially, I do better when I employ a discretionary approach.

 

[EdgeHunter]

Quote from Buy1Sell2:

No. ----------Scaling out is inferior irrespective of style or strategy. The math remains the same regardless. It's just common sense.

No its not... and putting smiley's at the end of sentences does not make it true...

The lower the liquidity (average volume) a market is experiencing on any selected time frame (bar period) versus it's average liquidity the more scaling out is an advantageous style and strategy...

If liquidity is above average to high then holding all contracts till the cows come home up until the point of your 'Holy Grail' price and then unloading all at once is the best and most advantageous exit strategy...

this is dynamic math versus your simplistic black and white math...


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

 

[volente_00]

Quote from Buy1Sell2:

Your calculations were well off the mark when the attempt to show scaling as more profitable. Also, while 140 points profit was not as good as 228, it was however much greater than the optimal exit point for the setup I used. (Anyone can calculate optimal exit point). In other words, by not scaling, I actually did better than the scaler who most likely would have taken some off of the table at 20 or 30 points. I was able to do this by using trailing stops and staying in the trade at full position. Scaling has been totally debunked by the math in this thread and remains inferior to not scaling.

The fact remains, had you scaled half out at 228, and let the other stop out for the 140, you would have been more profitable period.

I ask for the third time, show me a time when the S & P has moved 300 points without having a 100 point retracement in between.

 

[EdgeHunter]

Quote from EdgeHunter:

No its not... and putting smiley's at the end of sentences does not make it true...

The lower the liquidity (average volume) a market is experiencing on any selected time frame (bar period) versus it's average liquidity the more scaling out is an advantageous style and strategy...

If liquidity is above average to high then holding all contracts till the cows come home up until the point of your 'Holy Grail' price and then unloading all at once is the best and most advantageous exit strategy...

this is dynamic math versus your simplistic black and white math...

by measuring average liquidity / volume for the time frame you are using and knowing where you stand after each bar period... then you can make this dynamic decision as to scaling out or holding until 'Grail Point' is reached and unloading all contracts...

You would have a spreadsheet, as attached one, that tests each 15 minute bar liquidity readings (or tests whatever time frame over whatever days average)... that measures the dynamics of the liquidity as it changes and as the market changes...

and allow you to make a dynamic decision... about which strategy to deploy... not a flat earth black and white strategy math strategy that does not take into account real market variables...

For ES: Column A forward to Column H is average bar volume / liquidity for each 15 minute bar volume over a 20 day period broken down by fifths... Min volume, 20% of average, 40% of average, etc... with each bar being its own standalone bar...

Column I forward to Column P is the the average bar volume SUMMED TO where you stand to that point in time today... 30 minutes into the day .. 45 minutes in, 60 minutes, 75 minutes in, broken down into fifths from Min to Max, etc.

at a glance, every 15 minutes, you know where liquidity stands and what exit strategy to properly use...

Scale out like crazy, Scale out wisely at certain points or Hold Until the Cows come home...


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

 

[austinp]

<i>"Scale out like crazy, Scale out wisely at certain points or Hold Until the Cows come home... "</i>

On a sideline note, there is another approach to this equation. Scaling into trades and exiting any way seen fit (my preference being all-out) accomplishes the same objective with less initial risk. In other words, more advantageous for smaller accounts OR leveraging higher in any account with relative "safety".

In the NQ 500-tick chart of Friday's session attached, we see where price action broke above a significant trendline in the morning near 1860. Buying 1/2 unit of x-amount of contracts there with an initial stop of -5 index points(handles) from entry gives a -$100 per contract initial risk, but only half our typical size.

If we are trading two-lots, ten-lots or fifty-lots as our maximum risk position per capital balance accordingly, we enter 1/2 our size at the 1860 zone.

Price action can inevitably do one of two things: work in our favor, or stop out for loss. If price action reverses from there and stops us out for -5pts, we just experienced a 1/2 position loss from what is considered normal risk size. If we risk -2% of account balance on each trade, that would in essence be a loss of -1% balance.

When price action moves in favor, we have two more choices. Manage unrealized gains to focus on loss avoidance, or manage unrealized gains to focus on maximized gains. Those two choices are where this thread greatly differs.

Most traders, especially smaller account traders fixate on "not to lose" mentality. That's where the scaled-out tactics, aggressive exit fixation comes from. "Don't let a small win turn into a net loss". You can't go broke taking profits". Etc

A second choice is to trade with max gains as our focus. In this specific case, the NQ gave a second buy signal near 1867 for about five different reasons. Our initial position is now +7pts in our favor of unrealized gains. With a focus on max gains, we buy our second 1/2 position there for a blended entry of 1863.50

Our initial stop can be placed at 1861.00 for the entire position, currently -6pts below resting price levels. Pretty safe distance in NQ if price action has any potential to continue in favor. We might even snug our stop a bit closer to blended entry than that, if desired.

Price action goes to 1868.50 and we now have +5pts unrealized gain equivalent. In reality, our initial risk was actually -2.5pts full size equivalent. Expressed in dollar terms, the initial risk was just -$50 per contract of a full size position, because we legged into half. Now our full-size position is at +$100 per contract with NQ trading just another +1.5pts above second entry.

**

See the difference in scaled in versus out? Had we put the full position on at entry and hit the stop-out before price ever went one tick in favor, we're out -$100 per contract. Scaled in, we minimize risk on our way to maximizing reward. We have full positions on when price action is moving in our favor.

Take this one step further. At the 1860 level, enter full position long. At the 1867 level, enter a second full position long. Blended entry is 1863.50 = stop 1862.00 on the entire 2x position. True risk is -3pts / -$60 per contract of a full-size position on this 2x size trade.

When it reaches 1874.00 and we exit at 1873.50 on a trailed stop, that +10pt move on 2x normal size is equal to a +20pt profit move per normal size contract position. At no time was our initial risk greater than -5pts per contract, and that was only at initial entry. Once price action began moving in our favor, we reduced risk and leveraged reward while the market moved in our favor, swimming downstream with the current's flow.

**

See the difference? Those type of scaled-in for max gains / minimal loss are offered every day in the NQ, ZB or ZN or any other directional tape such as many/most individual stocks. The ER2 used to be great for this, now it's too thin and fuzzy.

The ES sucks for this approach, too much back & fill to add second positions and expect price action to keep moving in favor. Of all the eminis, NQ is by far the most trendy and directional once it comes out of congestion points.

How many successfully scaled-out trades does it take to equal each successful piled-on trade? Only each trader can say for sure. Some of us prefer to trade that way because our fixation is not focused on making each and every single trade a winner, regardless how tiny that victory may be.

Controlled losses and bigger wins = greatest ascent of equity curve progression. Just another approach to controlling loss while maximizing profits.

 

[15806]

Hi everyone, I am a new member of this forum.

I found this thread two days ago when searching on the Internet for "scaling out". I thought the subject and the comments in this thread was so interesting that I could not stop until I read all 188 pages (it took some time )

I am aware of the fact that this thread started more than two years ago and last comment was made nine months ago, so maybe no one will read this

English is not my native language (I am Swedish) so please forgive me if my grammatics sometimes are terrible. ''

NOW TO MY QUESTION:

If using a time exit approach instead of a trend following approach that can make a trade go on "forever", could it not be true that a Scale out-method is better than a "All out"-method?

An example:

I have created a profitable trading model in which the longest holding period is five days (after five days I am out). I often take profits earlier than that.

Not to make things too complicated (hopefully I don´t make it too simple) trades in the example below will either show profit or a flat performance after five days.

Let us say that the trading model has the following characteristics when back testing:


10% of the trades go to a 1 point profit (but not to 2p profit)
20% of the trades go to a 2 point profit (but not to a 3p profit)
40% of the trades go to a 3 point profit (but not to a 5p profit)
20% of the trades go to a 5 point profit (but not to a 10p profit)
10% of the trades go to a 10 point profit (and the highest of these go to 15p profit and average of these shows a 12p profit)

Let us in this example make the assumption that all trades has fallen back to flat performance after five days.

With this profile isn´t it always better to scale out than "exit all" at a certain point? Maybe I am missing something crucial here, in that case I hope that someone will tell me

Not to make this post to long I will post one more showing how I am calculating. Thanks a lot in advance for any answer to this post and the next! Regards Pontus

 

[tommo]

scaling out will probably increase the number of wins you have. But it will redduce the size of your wins. There is no, "best" way to do it. You can have a trend follower that only has trailing stops and a range trader that uses scaling exits. Both can have exactly the same expectancy over the long run. Horses for courses.

 

[15806]

Quote from tommo:

scaling out will probably increase the number of wins you have. But it will redduce the size of your wins. There is no, "best" way to do it. You can have a trend follower that only has trailing stops and a range trader that uses scaling exits. Both can have exactly the same expectancy over the long run. Horses for courses.

Thanks a lot Tommo for your reply, appreciate it! I agree with what you are saying that both can have the same expectancy over time if one is using a trailing stop, I should have added that I am not using a trailing stop in that model.

If not using a trailing stop and like in the example all trades are closed after five days or earlier what is better, a NO SCALE OUT approach or a SCALE OUT approach? I have no strong opinion about this, but I am at the moment more into the Scale out approach for this model.

Most of the trading models I have built is trend following and I love the philosophy behind it, but to diversify my portfolio and reduce the risk, I also use trading models with a different philosophy.

By the way, I got stucked in trying to calculate the optimal scale out method using the historical statistics in the example, assuming that the future will show the same results (I know it never will but all we have is historical data ).
Maybe someone could help me with that. I think that I have to start scaling from the 3 point profit level (as it seems to be the optimal profit level when selling ALL and not scaling) and not before that, but I am not sure

Thanks again for your reply, thought this thread was dead and that no one would hear my call for help


Regards Pontus

 

[Buy1Sell2]

All in --All Out continues to reap huge rewards for those who are utilizing it. For example, one who sold this last SP top and rode it all the way down would have been much more profitable than the scaredy cat who started with a position that was too large and took their profits at 1300. Scaling out is the result of emotion and not intellectual analysis.--Ishmael

 

[Thunderdog]

Quote from Buy1Sell2:

...Scaling out is the result of emotion and not intellectual analysis.--Ishmael

Still at it, eh Izzy? Oh yeah, all-or-nothing is the preferred way to go in an environment of uncertainty. That's why I always run in the dark with scissors.