Single in Scale out Method

alfiemal

Active member
112 4
Hi all what do you think of this single in scale out method of risk/money/trade management good or bad?
i know some traders say its not good scaling out too early but it keeps your winning percentage high, depends on your trading personality i suppose...

please watch the video on you tube;


for the maths geeks what is the probability of the first target being hit? just so i can work out the likelehood of a string of losers using this method...
 

wino59

Active member
126 12
Hi all what do you think of this single in scale out method of risk/money/trade management good or bad?
i know some traders say its not good scaling out too early but it keeps your winning percentage high, depends on your trading personality i suppose...

please watch the video on you tube;


for the maths geeks what is the probability of the first target being hit? just so i can work out the likelehood of a string of losers using this method...

Scaling out is bad. It messes with your risk reward ratio.

I'll try an explain using simple math.. Let say you trade a 2 lot, and risk 4 ticks (stop) and a profit target of 4 ticks on 1 lot and you move your stop to break even after profit target 1 is reached and then your next target on your remaining 1 lot is 8 ticks.

Lets say you hit the 4 ticks goes to 7 ticks comes back to your price... you made 4 ticks on your one lot, and broke even on the other one. Essentially what you did is risk 8 ticks to make 4 ticks. Even if you hit both targets you are risking 8 ticks to make 12.... Not very good risk to reward... It is better to hit your 4 tick profit with both lots, at least that is 1:1

Also in the above scenario if you would hit out at a 6 tick profit with both lots you would have made the same amount of profit as hitting the 4 and the 8 tick profit targets.

Hope this makes sense.
 

alfiemal

Active member
112 4
yeah there are different opinions on scaling, i just wondered what others thought, another way to look at it is its seems better to have a R:R ratio of 1:2 or better 1:3 but its much harder to hit the targets, with the method in the above video hitting your first target which is only half the distance initial risk is a high probability event just because it is much closer to your entry, then if you move your stops up by half it reduces your risk by 83%, so what i was thinking if i risk 1% on each trade but i use this scale out method then the majority of the time i would only be risking 0.17% (3 lots move halfway up after first target is hit...) so reducing my risk exposure overall??
 

wino59

Active member
126 12
yeah there are different opinions on scaling, i just wondered what others thought, another way to look at it is its seems better to have a R:R ratio of 1:2 or better 1:3 but its much harder to hit the targets, with the method in the above video hitting your first target which is only half the distance initial risk is a high probability event just because it is much closer to your entry, then if you move your stops up by half it reduces your risk by 83%, so what i was thinking if i risk 1% on each trade but i use this scale out method then the majority of the time i would only be risking 0.17% (3 lots move halfway up after first target is hit...) so reducing my risk exposure overall??

Not really...the video is right about the percentages, but only because it closed 1 contract.

If I am reading it correctly, then this is likely scenario. you hit your target, take off one contract, then lets say it reverses, and hits your stop, well according to the video, 2 contracts hit the stop, and 1 contract hit the target, so you lose money on 2 contracts, and make money on one, which by the video looks to be like a 1:1 ratio, so in this case you lose money even hitting the first target. (Winning trade that loses money)

Also what if it goes against you and blow out of all three contracts. Your win rate on your second and third targets have to be so high to balance out your losers, because when you lose you lose on all three.

Mathematically it doesn't make sense. By the way, I am not trying to be an A$$, just trying to help. Trade management is hard enough, without complicating things, it will also mess with your emotions as you had a winner, then watched it disappear, or you could have made a lot more had you not scaled out, etc.
 

alfiemal

Active member
112 4
Not really...the video is right about the percentages, but only because it closed 1 contract.

If I am reading it correctly, then this is likely scenario. you hit your target, take off one contract, then lets say it reverses, and hits your stop, well according to the video, 2 contracts hit the stop, and 1 contract hit the target, so you lose money on 2 contracts, and make money on one, which by the video looks to be like a 1:1 ratio, so in this case you lose money even hitting the first target. (Winning trade that loses money)

Also what if it goes against you and blow out of all three contracts. Your win rate on your second and third targets have to be so high to balance out your losers, because when you lose you lose on all three.

Mathematically it doesn't make sense. By the way, I am not trying to be an A$$, just trying to help. Trade management is hard enough, without complicating things, it will also mess with your emotions as you had a winner, then watched it disappear, or you could have made a lot more had you not scaled out, etc.

No probs mate just good to get second opinions. Im not sure about this scaling out method myself...

In this method there is a higher chance of the first target T1 being hit because it on only 50% the distance that the stop is (check the video the SL is further away than T1), then when/if T1 is hit the stops on the other 2 contracts are reduced by half the distance from the initial stop level to the entry, so if your stops are then hit after you scale out the first contract at T1 you have reduced your risk by 83% if you do the math its quite simple (the other 2 contracts are not stopped out at the original stop level), this should happen most of the time as T1 has a higher chance of being hit due to both probability and your entry method, i have been looking at it on alot of trades in hindsight and it is rare that T1 does not get hit so losing your full risk of 3 contracts is an uncommon event but obviously will happen...

I personally think that just having a 1:3 risk reward ratio would be more profitable but its alot harder psychologically to trade. If you have a 1:3 risk reward ratio it is common to see your potential winners turn round and hit your stop.
 

xXOptionsXx

Newbie
3 1
I actually prefer the opposite when day trading. I scale in, (first testing the waters), add to the position as it moves in my direction, then single out when I hit my profit target.
 

Dinos

Veteren member
4,112 714
Scaling out can work in your favour or against. depends how and what system you apply to scaling out

My EU trading last week saw me take 23 trades, netting 190 pips, compared to 188 had I scaled out out, so not a lot in it, and this is more or less the case most time and swings either way to which is better.
 
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be-positive

Veteren member
4,969 488
Scaling out can work in your favour or against. depends how and what system you apply to scaling out

My EU trading last week saw me take 23 trades, netting 190 pips, compared to 188 had I scaled out out, so not a lot in it, and this is more or less the case most time and swings either way to which is better.

but captain you are a :cool:hustler
 

alfiemal

Active member
112 4
Scaling out can work in your favour or against. depends how and what system you apply to scaling out

My EU trading last week saw me take 23 trades, netting 190 pips, compared to 188 had I scaled out out, so not a lot in it, and this is more or less the case most time and swings either way to which is better.

Thats the impression im getting doing a little testing sometimes your alot better letting your winners hit risk/reward targets of 2 or 3 but on the flip side when you have a bad losing streak its better to scale out and move stops to BE asap.

Scaling out is easier to trade but probably less profitable i would say??
 

NVP

Legendary member
37,758 2,100
Hi all what do you think of this single in scale out method of risk/money/trade management good or bad?
i know some traders say its not good scaling out too early but it keeps your winning percentage high, depends on your trading personality i suppose...

please watch the video on you tube;



for the maths geeks what is the probability of the first target being hit? just so i can work out the likelehood of a string of losers using this method...

read forexperians threads and his scaling out............he uses this VERY VERY important strategy to keep him profitable alongside others :smart:

N
 
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Dinos

Veteren member
4,112 714
Alfiemal, An example of how scaling out would have worked today, I took an EU long at 9.05 and closed the position for +10 pips, however, if I had taken half my position off and closed the subsequent half when my signal broke, the second half signal would have netted +15.

It really is swings and roundabouts, but if you monitor it over time, only you can decide whether its the best method for you.
 
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alfiemal

Active member
112 4
Alfiemal, An example of how scaling out would have worked today, I took an EU long at 9.05 and closed the position for +10 pips, however, if I had taken half my position off and closed the subsequent half when my signal broke, the second half signal would have netted +15.

It really is swings and roundabouts, but if you monitor it over time, only you can decide whether its the best method for you.

thats exactly it in a nutshell, some will like it some will not its up to the trader!! (y)

in the original question the scale out method they are suggesting is where you scale one of your 3 lots out at T1, but your 1st target (T1) is only 50% of your initial risk so when you work it out if you scale out 1 lot at T1 then reduce your stops by half it has the effect of reducing your initial risk by 83%, seems strange at first but it does.

also with that method hitting T1 is a high probability event as it is only half the distance from your entry than your stop, so even on a crap entry still most of the time you should hit T1.

i like the sound of it as basically i personally dont like risk, id rather make less and have slow profits than make a big trade now and again that covers all my stop outs, but thats just me!!
 

LiquidGenius

Junior member
22 1
Scaling out feels better psychologically, but if you have the right strategy and the right odds, sometimes it's actually better to just set the bar higher. Take more losses, take bigger profits, but the profits eventually win. However when win rate suffers so does mentality.
 

hyunski

Junior member
15 2
Single in scaling out is actually exactly what I do for swing trading. I've tried Livermore's method of scaling in and single out, as well as single in and single out but they cause too much volatility in my account and a loss in trading self confidence.

The psychologically rewarding thing about this way of entry/exit is that once it hits your first profit target, you know you have locked in a small profit regardless of if the price ultimately hits your initial stop. So it increases the probability of your wins and reduces account volatility.

Think another big reason for using this for short-term trading strategies is that prices move due to noise more than they do from an established trend as you move into shorter time frames.

Depending on the situation this can be modified. Let's say the stock hits your first profit target and you sell half your position. But then it shows low volatility and enters into a sturdy trend. If you see this happen, then you would not sell at your second profit target but sell when the trend breaks. Alternatively if it shows high volatility, you do want to sell at your profit target because there's a good chance sellers will sell into a greedy hype. The general rule of thumb is that higher the volatility, the more you want to use profit targets.
 
 
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