Money Management: Scaling Strat

[Chorlton]

thanks to zupcons lastest post. thats excellent.

Chorlton: good point. I think may be addressing that with my new thread on optimal profit-taking.

But yes, I tend to be linear about my entries, in that once I take a signal, thats it, I ride it to the end.
Since I trade pullbacks, there can be several pullback entries on an extended trend, and I am toying with multiple entries. Something for this weekend to ponder over.

Trendie,

I can't comment about FX as I trade Equities at the moment, but IMO I'll be very surprised if Pyramiding does not offer an improvement to your overall strategy expecially if your strategy is to ride a trend.

This is an approach very often overlooked yet is one that can really accelerate an already profitable strategy.

BTW I had a quick look at your thread "optimal profit-taking". My 2 cents is that it doesn't seem very logical to scale-out of a winning position. The whole point IMO is to run the winners and squeeze as much as possible out of them whilst cutting losses quickly. By scaling-out you are limiting the chance of achieving the few big wins, which is paramount if ones stratgey is to capture as much trend as possible as those strategies normally result in 20% of trades making 80% of the profits.

As a caveat though, I am yet to actually test "scaling-out" strategies, so this is currently only my opinion and not based on any actual results.

Chorlton

 

[trendie]

I was curious about those who do scale-out. as you say, it seems counter-intuitive.
but, clearly serves a purpose. maybe it appeals to conservative traders who want to get to break-even and a free trade asap.

the flip side, how often do these outliers happen to capitalise on them?
eg, if you have 10 trades, and you take a profit of 50 pips on each, you get 500 pips.
alternatively, if you allow them to get stopped out, you may get some B/E trades, some 20 pippers, and the 2 out of 10 to give you 200 pips each. But, the take-profit jockeys may make as much, and with less spikey hassle.

this is really liberating! once you have a positive edge, anythings possible!
(once again, thanks to wasp about setting conservative weekly targets! less pressure)

 

[SvenFoster]

I was curious about those who do scale-out. as you say, it seems counter-intuitive.
but, clearly serves a purpose. maybe it appeals to conservative traders who want to get to break-even and a free trade asap.

the flip side, how often do these outliers happen to capitalise on them?
eg, if you have 10 trades, and you take a profit of 50 pips on each, you get 500 pips.
alternatively, if you allow them to get stopped out, you may get some B/E trades, some 20 pippers, and the 2 out of 10 to give you 200 pips each. But, the take-profit jockeys may make as much, and with less spikey hassle.

this is really liberating! once you have a positive edge, anythings possible!
(once again, thanks to wasp about setting conservative weekly targets! less pressure)

Probably a little late to the game but, Random Equity Curve Simulator of a trading system. Learn it before you trade

Trendfollowing is great but not the best for a smooth curve.

Scaling out can help your top line. If the purpose is to leverage your trades up you need to reduce drawdowns and smooth the curve.

By scaling out you can increase one side of that calculation i.e the probability. It has a knock on effect of course to the other side but remembering that a smooth eqty curve is the goal this can help.

I'd suggest people should record the following for a trade
MFE - Maximum favorable excursion, how much could you have made
MAE - Max adverse excursion. how much did it go against you.

once you've got enough of those you can set stops and tps(scaling out etc) to get the best compromise. Then you should be able to leverage up the risk with out to much chance of blow out.

jmho
Sven