Is there a mathematically better way to scale out? Or efficient way of triggering trailing stops for different lots size accumulated as the price touches various profit target level.... 
why scale out
- Thread starter investwthme
- Start date
Just imagine you're up 5 points and you're at an area where you should take some profit... then the market comes back to take your stop.
Now, imagine you're up 5 points and you see potential for more, but you close... then the market runs another 3 points.
Scaling out helps with both of these issues... It allows you to:
1. Take some profit off the table
2. Stay open for more profit
3. Eliminate risk (well, the way I do it)
I don't think scale-out or all-out strategies will do you any good unless you're taking high probability trades and have a pre-determined risk structure.
Now, imagine you're up 5 points and you see potential for more, but you close... then the market runs another 3 points.
Scaling out helps with both of these issues... It allows you to:
1. Take some profit off the table
2. Stay open for more profit
3. Eliminate risk (well, the way I do it)
I don't think scale-out or all-out strategies will do you any good unless you're taking high probability trades and have a pre-determined risk structure.
I like the idea of scaling out, but I always wonder if actually does decrease risk? So if you are long 2 contracts...and your stop is 20....if your stop gets hit you are taking a big hit....if you scale out, so sell 1 contract after + 5 and sell the the final contract at + 20....really your risk/reward is less than 1:1. Of course these numbers are examples, but as far as I can see the risk reward is reduced somewhat with scaling out.
You may as well just buy 1 contract initially so that if your stop gets hit its no biggie, and then when you hit a profit target - take it. In this case you may actually be getting a better risk/reward ratio.
Am I overlooking something with these two scenarios? I must say I am undecided either way. But my initial thought would be that the rr ratio is reduced with scaling out and so it may not be that effective.
You may as well just buy 1 contract initially so that if your stop gets hit its no biggie, and then when you hit a profit target - take it. In this case you may actually be getting a better risk/reward ratio.
Am I overlooking something with these two scenarios? I must say I am undecided either way. But my initial thought would be that the rr ratio is reduced with scaling out and so it may not be that effective.
Quote from chrisdunn:
Just imagine you're up 5 points and you're at an area where you should take some profit... then the market comes back to take your stop.
Now, imagine you're up 5 points and you see potential for more, but you close... then the market runs another 3 points.
Scaling out helps with both of these issues... It allows you to:
1. Take some profit off the table
2. Stay open for more profit
3. Eliminate risk (well, the way I do it)
I don't think scale-out or all-out strategies will do you any good unless you're taking high probability trades and have a pre-determined risk structure.
all in , all out benefits all systems, even the low probability and losing systems.
Now, the example of the trader who is using a losing system:
Four ES Contracts 90% win ratio all in/all out versus
Four ES Contracts 90% win ratio scaling out at half target.
1 pt target 10 pt initial stop loss
1st example with 20 trades
18 winners for 1 X (4 conracts) = 72 pts ($3600)
2 losers for 10 X (4 contracts) = -80 pts (-$4000)
Net loss $-400
2nd example with 20 trades
18 winners for 1 X(2 Contracts)=36 pts ($1800)
18 winners for .5 X(2 Contracts)=18 pts ($900)
2 Losers for 10 X(4 Contracts) =-80 pts (-$4000)
Net profit $-1300
As you can see, even the trader who employs a losing system will lose less by not scaling out. --Ishmael
The math is 100% scientifically correct. Any mechanical system writer will learn thru experience that all-out exit management is the highest net profit results strategy versus any scale-out strategy.
The difference lies in human emotion. Some traders simply perform better by catering to the emotional comfort of "winning" any part of some trades.
Whatever the bottom line results are in each indivual's account is what they should go with. Scientifically, all-out is optimal. Spiritually, scale-out may be a necessary band-aid for human emotion.
