Why do they do it?

This is a discussion on Why do they do it? within the General Trading Chat forums, part of the Reception category; Phantom also says that scaling is pointless for the short term trades you and I do on ES - it's ...

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Old Jan 27, 2011, 5:53pm   #161
 
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Re: Why do they do it?

Phantom also says that scaling is pointless for the short term trades you and I do on ES - it's all in and all out according to that wisdom.

Ergo, it's down to knowing your 'edge' and when to push it when circumstance dictates.
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Old Jan 27, 2011, 5:54pm   #162
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Re: Why do they do it?

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Originally Posted by DionysusToast View Post
Depends on the type of trading you are doing. I've read Phantom or the Pits and he says that you can't be succesful if you don't scale in to a winner. I've never met that guy but I know people that scale out of trades very succesfully.

On a long, scaling in averages up your price and scaling out averages it down. Averaging up your price moves UP the place you'll break even and the place you'll start to lose. It's not something I'd be comfortable with. Certainly if I were to do it, it would have to be pyramid fashion - that I'd probably be able to live with.

I don't think either way is right or wrong but I do feel that day trading is more suited to scaling out than scaling in. Now of course, if you scale out - you don't need the same position size each time, you might go 'all in' on a trade because you feel it's more likely to work out.

Obviously, on way allows you to be in a trade before 'pushing it' and another way requires you to have a clue from the start. If you have no feel for the chance of a specific trade working out, you can't really commit more to any it.

BTW - the phantoms book is free - let me know if anyone wants it. It's a good read.
I've done some backtesting on scaling in. Do this if you want (like the Turtles) and you'll make more money when market conditions are right, BUT overall your drawdowns will be larger.

If a risk based measure of a system is the return relative to the drawdown, I've not found that scaling in is better (the opposite, in fact).

I don't know about scaling out.. my guess is that it doesn't help because for those rare 5R winners, you'll have nothing left in it at the end.

This is the case for a longer term (i.e. using dailies) trend system .... I don't know how it applies to intra-day techniques.
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Old Jan 27, 2011, 5:59pm   #163
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Re: Why do they do it?

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Originally Posted by robster970 View Post
Phantom also says that scaling is pointless for the short term trades you and I do on ES - it's all in and all out according to that wisdom.

Ergo, it's down to knowing your 'edge' and when to push it when circumstance dictates.
That's an awkward one because for scaling in to be correct you would also need to be able to add onto a trade, which actually lowers your average.
1/
Imagine you short gold at 1300 with 50% of a position, it goes against you, you addon your second half at 1350 and the market starts to move with you. All good. You've averaged a 1325 entry and can now manage it.

2/ You short gold at 1300 with a 50% position and it immediately goes your way. You now have a winning position but it's half of what you would normally win with a full position.

3/ Imagine you short gold at 1300 with 50% of a position, it goes against you, you addon your second half at 1350 and the market goes further against you. You've averaged a 1325 entry and then stop out at 1375.

By doing the above you are making sure that your losing positions are always full positions but your winning positions might either be 50% or 100%.
So, the win ratio is skewed towards losing more.

Obviously, it';s more complicated than that due to volatility, usualy retraces at some point, etc. etc.

Quote:
Originally Posted by meanreversion View Post

I don't know about scaling out.. my guess is that it doesn't help because for those rare 5R winners, you'll have nothing left in it at the end.
5R can be possible even on swing trades but I suppose it's tricky due to the whippiness. Intraday 3R or more is doable with scaling out.
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Old Jan 27, 2011, 6:15pm   #164
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Re: Why do they do it?

Sorry, by scaling in I mean adding to a position as the market goes in your favour.
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Old Jan 27, 2011, 6:30pm   #165
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Re: Why do they do it?

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Originally Posted by meanreversion View Post
Sorry, by scaling in I mean adding to a position as the market goes in your favour.
Aha...gotcha. So basically you enter a small position to find out what happens and then as you are proved right you add on more...but it does lower the average a bit.
Probably one of the more conservative methods and got nothing against that...have used it a few times on trades I'm not sure about. It still leads to a few times where the trade moves against you and you think of averaging in the other way.
You have to be careful on the risk as well when lowering the average.
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Old Jan 27, 2011, 6:31pm   #166
 
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Re: Why do they do it?

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Originally Posted by SanMiguel View Post
That's an awkward one because for scaling in to be correct you would also need to be able to add onto a trade, which actually lowers your average.
1/
Imagine you short gold at 1300 with 50% of a position, it goes against you, you addon your second half at 1350 and the market starts to move with you. All good. You've averaged a 1325 entry and can now manage it.

2/ You short gold at 1300 with a 50% position and it immediately goes your way. You now have a winning position but it's half of what you would normally win with a full position.

3/ Imagine you short gold at 1300 with 50% of a position, it goes against you, you addon your second half at 1350 and the market goes further against you. You've averaged a 1325 entry and then stop out at 1375.

By doing the above you are making sure that your losing positions are always full positions but your winning positions might either be 50% or 100%.
So, the win ratio is skewed towards losing more.

Obviously, it';s more complicated than that due to volatility, usualy retraces at some point, etc. etc.


5R can be possible even on swing trades but I suppose it's tricky due to the whippiness. Intraday 3R or more is doable with scaling out.
I think when you're taking 1-6 pts on ES, scaling in makes little sense. On swing trading, I can see on ES you'd have to be working the daily to make any sense of that - I can't see scaling on 4H working that well as when it chops, which it does every now and again, you're probably going to get a good drawdown.
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Old Jan 27, 2011, 6:38pm   #167
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Re: Why do they do it?

Quote:
Originally Posted by DionysusToast View Post
I've read Phantom or the Pits and he says that you can't be succesful if you don't scale in to a winner.
Think about kurtosis in the distribution of returns and you'll understand exactly why he says this.
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Old Jan 27, 2011, 6:41pm   #168
 
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Re: Why do they do it?

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Originally Posted by the hare View Post
Think about kurtosis in the distribution of returns and you'll understand exactly why he says this.
By implication, does that mean that short term trading is doomed to failure?
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