"Scaling out" is inferior behavior

[Buy1Sell2]

Quote from TRYKtrading:

OR, you could reinvest your profits on the half knowing it would rebound off a short-term pullback, and make even more the second time around, EITHER by going ALL-IN again, or just a partial reinvestment, BECAUSE most likely you have reinvested that freed-up capital into other positions.

No. You would be better off removing the entire amount and reinvesting the entire amount on the pullback. There is a lot to the post volente had about taking all off at the predetermined target. That target in this case would be the indivual's optimal target. Nice corroboration volente.

 

[volente_00]

Quote from Buy1Sell2:

Everyone wants to get tied up with the notion of optimal exit point and whether or not it can be determined. The real discussion from the beginning is not as much that as it is just to let your trade run fully to maturity. With that in mind, to make it more understandable for the masses, just think of it as the optimal exit point for each individual's taste and stop trying to change the discussion into one of "market" optimal exit target. You'll quickly see that a person using their own individual optimal target of 6 points will do better by letting their full trade run to 6 points each time. The person using a target of 15 points will do better by letting the trade run 15 points each time. Also, even the lowly trader using a 10 point stop and a half point target will do better by letting the trade run fully to the half point each time instead of taking some off at a quarter point. --Just get past the knee jerk emotional reaction to the premise and you will see that the math doesn't lie--even for the person not able to identify optimal targets. --Good trading to all --Ishmael

But for posters like you who do not use profit targets the theory does not hold water.

 

[Buy1Sell2]

Quote from volente_00:

But for traders like you who do not use profit targets the theory does not hold water.

Certainly this proven theorem holds water. My target, although not yet defined, is still a target/exit and I will do better over the long haul, by exiting all at once.

 

[FanOfFridays]

Quote from Buy1Sell2:

You'll quickly see that a person using their own individual optimal target of 6 points will do better by letting their full trade run to 6 points each time.

I think it's great that the OP has admitted that his earlier arguments were false. When the thread first started the OP was trying to claim that the optimal exit point could be objectively determined. He was not saying it was each individual's optimal exit point, he was saying that we could use things like ATR, vol and (bizarrely) backtesting to determine the objectively defined, valid for all traders optimal exit point for any trade.

Now he has changed the story and is saying that each individual should use their own 'optimal exit point' as the place where they take the entire trade off.

He has now admitted that there is no 'optimal exit point' except the one that each trader feels is right for him. A huge step forward.

Now all he has to do is understand that for some trading systems (especially those that involve legging in) the optimal exit point will vary according to position size and the extent of the move, as well as other factors determined by the variables in the system.

Actually this is a welcome change in the story. Possibly, the claim that 'backtesting' could be used to determine the objectively defined optimal exit point for a trade was the thing that made the difference, since this is so obviously ridiculous.

Since there is no way to determine in advance what the markets will do, the agile trader will allow price action to dictate his moves. Some traders use targets, some do not. For those that do, sometime they will let a full position ride to the target. Sometimes, price action will show them that markets have changed and it is advisable to take part of a position off the table. Sometimes, market action will dictate that the entire position should be taken off the table before either a stop loss or a profit target has been reached.

It is self-evident to anyone who has traded real money that theoretical constructs like 'optimal exit point', although fine in the academic world, don't have much use in the real world. There is no one set of rules that applies to all traders and all systems. To suggest otherwise is naive at best and dangerous for beginners at worst.

 

[Buy1Sell2]

Quote from traderNik:



Now he has changed the story and is saying that each individual should use their own 'optimal exit point' as the place where they take the entire trade off.

He has now admitted that there is no 'optimal exit point' except the one that each trader feels is right for him. A huge step forward.

False. What I said is that if you would look at it in that way, you would understand the point more easily. In other words, that traders who are not able to define "market" optimal targets are still better off buy trading all in , all out just like the ones that can define and discover "market" optimal targets. Defining and discovering optimal is extremely possible and there are those who can do it. That's not as much what the thread is about though even if some try to move it in that direction. --Good trading to all -- Ishmael


--Out for the day---

 

[volente_00]

Quote from Buy1Sell2:

Certainly this proven theorem holds water. My target, although not yet defined, is still a target/exit and I will do better over the long haul, by exiting all at once.

Quite an oxymoron you have there.

Your scaling theory is invalid if you do not have a defined target.


If your target is undefined, and you are using trailing stops, then there will be numerous time where the market reverts back to your trailing stop to end the trade. When this happens, you would have been better off scaling out any amount at the more profitably price before the reversion back to the trailing stop. This even holds true for losing trades where one would scale out for some profit and then the trades moves back to the stop. In the end, none of us know what the market is going to do exactly. All we can do is play the probabilities and manage the risk.

 

[FanOfFridays]

Quote from Buy1Sell2:

In other words, that traders who are not able to define "market" optimal targets are still better off buy trading all in , all out just like the ones that can define and discover "market" optimal targets. Defining and discovering optimal is extremely possible and there are those who can do it. That's not as much what the thread is about though even if some try to move it in that direction

The idea that traders are 'better off' by letting trades run to some theoretical 'optimal exit point' is pure assertion and has no basis in fact. No proof has been offered in this thread to support this assertion, other than the fact that the OP says it is so. Market conditions will often dictate that a trade should be partially exited before the theoretical 'optimal exit point'.

To beginners reading this thread, these statements should be examined with the OP's other statements in mind. Please recall that this member has said that the optimal exit point for a trade - that is, the duration of a price move - can be determined by backtesting. Even the rawest beginner should intuitively sense that this is a bizarre notion. Certainly, of the thousands of members here, we have not seen one individual who has stepped up and said that he too thinks the duration of future market moves can be determined through backtesting.

When the thread first started, more people said they scaled out some or all of the time than stayed all in. In response to questions, the OP stated that the reason he felt positions should be exited all at once is that the optimal exit point for any trade could be determined in advance of the trade being initiated. This suggestion was met with amusement by those who actually trade real money. This is the central tenet of the thread, and all discussion of the initial premise (that it is better to go all out than scale out) must revolve around the idea that the optimal exit point can be determined in advance. This thread has no other meaning, since it is the reason given by the OP for his initial claims.

The OP is clearly unable to understand the fact that some systems scale in and therefore scaling out is necessary, but it is not necessary to pursue this. We can confine ourselves to disproving the premise that if one establishes all of one's position at once, it is only optimal to go all out.

 

[Buy1Sell2]

Quote from traderNik:


. This is the central tenet of this thread,

False. The central tenet is that trades should be let run to their maturity and exited all at once.-----------By the way, when the thread started, I still viewed scaling in as a viable option. I did along the way, discard that as well. Scaling in is ok for 401k long term investors since they are not in possession yet of the entry monies, but not for trading.--I can define and discover optimal exit points, but that is not the premise of the thread.


--Definitely out for the day-- Good trading to all-- Ishmael

 

[FanOfFridays]

Quote from Buy1Sell2:

False. The central tenet is that trades should be let run to their maturity and exited all at once

This is a bit of selective memory and sophistry on the part of the OP. A review of the first pages of the thread will be instructive.

The OP was asked how he could possibly know that the time was right to take the entire position off. What happens if the market continues in your direction? Allowing winners to run is a key part of trading, and something that many traders have problems with when they first start out. How do you know when a move is 'mature'?? This was the central question that arose from the OP's assertion.

In response, the OP said that the optimal exit point - that is, the duration of a market move - could be determined before the trade was put on. This can be reviewed by reading through the first couple of hundred posts here.

This claim generated about 20 pages of heated discussion as trader after trader questioned this idea.

Only recently has the OP revealed his (truly bizarre) belief that the extent of future market moves can be determined through backtesting as well as examination of things like vol and ATR.

The central tenet of this thread is now and always has been that the optimal exit point for any trade can be determined before the trade is placed (according to the OP, this is done by "backtesting', although details have been hard to come by). This is the only way that a trader could possibly know that a move is mature and that it is time to take everything off as opposed to taking partial profits and moving stops up, in case the move continues. The entire thread has been one long assertion with absolutely no proof or basis in fact given. It is not surprising that the OP is trying to steer discussion away from this thread-defining assertion.

 

[Buy1Sell2]

Four ES Contracts 50% win ratio all in/all out versus
Four ES Contracts 50% win ratio scaling out at half target.

9 pt target 3 pt initial stop loss

1st example with 20 trades
10 winners for 9 X (4 conracts) = 360 pts ($18000)
10 losers for 3 X (4 contracts) = 120 pts (-$6000)
Net profit $12000


2nd example with 20 trades
10 winners for 9 X(2 Contracts)=180 pts ($9000)
10 winners for 4.5 X(2 Contracts)=90 pts ($4500)
10 Losers for 3 X(4 Contracts) =120 pts (-$6000)
Net profit $7500

Money can be made scaling out, but it represents inferior behavior--Ishmael