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Scaling out in profit

  • Post #1
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  • First Post: Jun 21, 2006 7:36am Jun 21, 2006 7:36am
I was reading that Van Tharp was strongly against scaling out of a winning position. He says that doing this you actually cut your profits short. To me it looks like securing profits. I could never find out an exit point like I find a stop loss, it never worked for me, so the only way to take out profits is scaling out the position. Scaling out can be tweaked to maximize profits.

For me it is very important to move to BE asap, it provides psychological ease. Also when moving to BE I close part of position (half usually but now I am thinking to close 1/3 only). Another tweak I want to experiment is closing 1/4 when profits move at the same distance as SL. Thus if I open a position with 2% initial risk and I close 1/4th as I said and if the SL is then hit I would only lose 1%, without moving the SL at all.

So I see scaling out as a good thing, not a bad thing.

Anyone has an opinion on this?
-soso
Quoting soso_beton
I was reading that Van Tharp was strongly against scaling out of a winning position. He says that doing this you actually cut your profits short. To me it looks like securing profits. I could never find out an exit point like I find a stop loss, it never worked for me, so the only way to take out profits is scaling out the position. Scaling out can be tweaked to maximize profits.

For me it is very important to move to BE asap, it provides psychological ease. Also when moving to BE I close part of position (half usually but now I am thinking to close 1/3 only). Another tweak I want to experiment is closing 1/4 when profits move at the same distance as SL. Thus if I open a position with 2% initial risk and I close 1/4th as I said and if the SL is then hit I would only lose 1%, without moving the SL at all.

So I see scaling out as a good thing, not a bad thing.

Anyone has an opinion on this?
Moving to BE is like air for breathing. Not only it makes you feel better but also prevents a profit to turn into a loss.

When a profitable position returns and exits at BE, then its kinda sad that you didn't close your position at prior point. So I also take a small profit when I move SL to BE.. like 1/2 to 1/6 depending in position and market conditions.

As to scaling out.. when you have your SL at BE it doesn't matter when you take the rest. For me scaling out is more a psychological thing. When I feel that the market has moved enough and is about to turn back I book some profit and maybe leave a small position open. I know I have made a profit and I know that the rest of the position can't turn against me (if nothing extreme happens, like 9/11).
Scaling out winning positions is all about risk management, and minimising account drawdowns. It is not for maximising gross profits on a particular trade and never should be thought of that way. By closing half a position, you have banked some profits and halved your exposure to drawdowns on that trade, two very good things to have locked away. So while it may not be maximising your gross profits when all lots are closed, with the reduced exposure, your net account balance at the end of the year may benefit. This is not even going into the psychological benefits for the beginner or wavering trader which are undeniable.

Just my 2 pips.
You can quit and they won't care, but you will always know.
Great thread soso! I total agree that BE should brought in asap even at 10 pips up in a trade. I like a 3 part senario where u have 3 lots traded with the 1st profit target at 10 pips ,2nd at 20 pips and the 3rd left open with a trailing stop of 20 pips all with BE at 8 pips up. This obviously depends on ur strategy such as vegas would not be setup like this but I feel protecting ur trade with a BE and taking profit along the way at different intervals is vitally important to the health of ur trading account.Would be keen to hear from others what mm systems they have had success with.
Quoting pippy le' pur
Great thread soso! I total agree that BE should brought in asap even at 10 pips up in a trade. I like a 3 part senario where u have 3 lots traded with the 1st profit target at 10 pips ,2nd at 20 pips and the 3rd left open with a trailing stop of 20 pips all with BE at 8 pips up. This obviously depends on ur strategy such as vegas would not be setup like this but I feel protecting ur trade with a BE and taking profit along the way at different intervals is vitally important to the health of ur trading account.Would be keen to hear from others what mm systems they have had success with.
i don't like the trailing stop thingy. 90% of the time you'll get shaken out because of range with a small profit even though the trade moves in the right direction.

trailing based on ATR or something like that would be more interesting if you are not scalping.
I also like going to BE and then a few pips. to me BE is like at tie ie kissing your sister. (but in my case my sister is such a great kisser.... oops! overshare) Anyway I like to grab a few extra pips, because if the logic is there for BE then is should be at BE plus a few in a moment.
Nolite dormiens pungere ursum. -- Latan Proverb.
Van Tharp compares it to reverse position sizing... it kind of makes sense when you read his explanations but on a simple gut level I would still scale out. Perhaps I should read that chapter again.

Dane
I usually scale into a position if it's a winning trade, the trend is going my way and everything looks good, I always take a position on that is half the size of my original one, once the SL has been moved to BE on the first one. I usually do this after 10-15 pips. When I am right about the market, I like to profit from it.
Always wait for the opportune moment… just be careful not to miss it.
  • Post #9
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  • Last Post: Jun 21, 2006 5:34pm Jun 21, 2006 5:34pm
One thing Van Tharp doesn't mention in that section is scaling out when you're losing so that you don't have a full position on if your stop gets hit. Then to me it makes more sense scaling both ways - winning and losing.

As you can see by the various responses it has plenty to do with your risk profile and money management techniques.

For example Dirk Du Toit advises to cut your winners short and let your losses run with his median grid trading system in BWILC. This is generally the antithesis of the axiom "cut your losses short and let your winners run."

I personally don't believe in profit targets, but prefer to trail positions using adequate stops and conservative positions sizing so I don't get whipsawed out early on and let the market decide my profit targets, rather than setting artificial ones.
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