tag:blogger.com,1999:blog-8503296865091275205.post6676375388241300190..comments2023-09-28T09:46:46.506-05:00Comments on By Age 25: The Conundrum of Scaling OutMatthttp://www.blogger.com/profile/15415789784418536589noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8503296865091275205.post-15044905057011306202009-02-05T13:19:00.000-06:002009-02-05T13:19:00.000-06:00Statistically speaking, i've read a couple of...Statistically speaking, i've read a couple of books about long-time pros who have done years and years of backtesting on virtually every kind of trading strategy, and the net overall profit of all-in-all-out is pretty much always more than scaling out. It didn't matter what was tested - all out was superior to scaling out. So your own analysis is correctly reflecting this over a large sample size. However, it WAS found that while scaling out decreases your overall bottom line, it also decreases your P&L volatility. i.e. you make less money, but you generally get better consistency.<BR/><BR/>So if a trader cares more about having a low volatility equity curve for any given period than having a more profitable but more volatile one, then they can go with scaling out. It all depends on what you value more. <BR/><BR/>But even then it's not so simple to assume that you'll actually end up with a lower overall bottom line by going with scaling out if you are a pure discretionary trader. With trading, the issue is never just about stats. There are intangible forces that can end up having huge effects which can't be measured. For instance, say scaling out makes a trader more at ease because his equity curve is less volatile, and as such he is more aggressive in taking trades and managing them (again assuming he doesn't have mechanical rules). Well then this could end up giving him a larger bottom line than going all-out DESPITE the statistics. In this case, the intangible benefit of being more aggressive (assuming it is prudent aggressiveness) due to feeling more at ease with the lower volatility equity curve could more than outweigh the statistical disadvantages of scaling out. <BR/><BR/>In the end I'm not proposing that one should scale out, but rather highlighting how pure statistical analysis can't really show you what the best outcome would be unless you are purely mechanical and 100% disciplined to follow the exact system no matter what. <BR/><BR/>I'm purely discretionary, but I still choose the all-out method, as I prefer overall profitability over the emotional comfort I can get from having a smooth P&L. And to still get the benefit of added aggressiveness despite not having the sense of comfort from a smooth equity curve, I condition my mind to remain aggressive despite stretches of losses. Obviously this is easier said than done. But in fact that's the very reason why all-out statistically gives more profits. It's BECAUSE it's more emotionally difficult to do that it naturally rewards you more. Simple logic there.Ziadhttps://www.blogger.com/profile/14121277288740658357noreply@blogger.comtag:blogger.com,1999:blog-8503296865091275205.post-86716772506434560262009-02-04T23:19:00.000-06:002009-02-04T23:19:00.000-06:00This blog was once called by age 22... lol...I'm a...This blog was once called by age 22... lol...<BR/><BR/>I'm already a year behind!!!Matthttps://www.blogger.com/profile/15415789784418536589noreply@blogger.comtag:blogger.com,1999:blog-8503296865091275205.post-44059846214316652492009-02-04T20:36:00.000-06:002009-02-04T20:36:00.000-06:00I think you should also start thinking about the c...I think you should also start thinking about the conundrum that is, the title of you Blog...does it change to By Age 24 in May? :PE-Mini Playerhttps://www.blogger.com/profile/08254731622932971485noreply@blogger.comtag:blogger.com,1999:blog-8503296865091275205.post-83484719820386612072009-02-04T20:34:00.000-06:002009-02-04T20:34:00.000-06:00I'm assuming you were using 2-contracts in your sc...I'm assuming you were using 2-contracts in your scale-out scenario. Did you run the #s with 3 contracts (scaling out 1/3)?<BR/><BR/>I'm definitely a believer in having a positive R:R (I think talking to you every day rubbed off on me), but at the same time, I like the idea of scaling out. But the way that I would do it is by exiting 1/3 of the position at my initial price target, which if I was risking 2 pts, would need to be 4 pts. Once I've hit my initial 4 pt target. I would lock in profit on 1/3 and move my stop to break-even or 1R on the remaining 2/3. Now lets say the position goes +6 pts in my favor, again I would scale out and lock in profits on 1/3, and here I would either move my stop up another 1-2 points, or maybe just leave the stop at 1R (+2 pts) and let the remaining position run with a trailing stop.<BR/><BR/>That's probably what I would if I was trading 3 contracts or multiples of 3.<BR/><BR/>Btw, log onto Yahoo messenger if you're so damn bored LOL :DE-Mini Playerhttps://www.blogger.com/profile/08254731622932971485noreply@blogger.com