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Trading setups around SR Zones

  • #61
  • Mar 9, 2009 11:39am Mar 9, 2009 11:39am
At any rate, I was looking for constructive feedback, not ridicule. So please tell me, if you're so sure, why is it wise to scale out?...because I used to agree with the idea of scaling out, but lately I've been questioning it again. I have been consistently trading a particular entry setup; however I noticed that I would have made more profit if I had gone all-in/all-out instead of scaling out.
  • #62
  • Mar 9, 2009 12:54pm Mar 9, 2009 12:54pm
Quoting mathematician
At any rate, I was looking for constructive feedback, not ridicule. So please tell me, if you're so sure, why is it wise to scale out?...because I used to agree with the idea of scaling out, but lately I've been questioning it again. I have been consistently trading a particular entry setup; however I noticed that I would have made more profit if I had gone all-in/all-out instead of scaling out.
The flaw in a scale-out strategy is that you expose yourself to the full amount of risk and sacrifice future potential gain for immediate profits. This goes directly against the mantra "cut your losers short and let your winners run" which is the core of any good trader's system. The scale-out method is good for beginners as it builds confidence and allows them to take some profits right now while still teaching them how to let the winners run. But realize it for what it is - a crutch that should be discarded as soon as possible.

A far better method is to scale-in. Using that method, you subject yourself to a much smaller amount of risk by virtue of only opening a trade with a small portion of your total size. Once you've seen your initial entry go into the money and see further entry signals in the same direction, you build your position. Rinse and repeat until you decide to exit and then you close out all positions. It's not as easy a strategy but pays off. This is the strategy the top dogs employ since it builds wealth faster.

As an example - My GBP/USD short was opened at 1.4030. If I were at my trading platform, I'd have opened another short position at 1.3820. Both of these would be targeting 1.3600 and below. If 3600 breaks and I think there's a good probability of further downwards movement, then I'll enter another short there. Repeat until I get a valid reversal signal.
  • #63
  • Mar 9, 2009 2:05pm Mar 9, 2009 2:05pm
Quoting thegunslinger
The flaw in a scale-out strategy is that you expose yourself to the full amount of risk and sacrifice future potential gain for immediate profits....
Yes, that is the conclusion I came to in my previous post.
Quoting mathematician
...So if the axiom is true, we can see that the only time we should do any scaling, is we should scale into (i.e. add to) winning trades. All other cases lead to bigger losses or smaller profits...
i.e. Scaling out is detrimental, and scaling in is beneficial. Although these blanket statements don't always apply (it really depends on all the details of the strategy), I think they are generally true.

What you said about it being a crutch and it builds confidence is exactly what I experienced. I have been scaling out in my current strategy. I am very confident in the setup, which has helped me be very consistent in my execution. At the same time, when I review the results, it's clear that scaling out is hurting my bottom line.
  • #64
  • Mar 9, 2009 3:28pm Mar 9, 2009 3:28pm
  •  zykas
  • | Joined Oct 2008 | Status: ... measure thrice, but cut once | 196 Posts
The big players trade with supports and resistances, This can be with fibo levels, round numbers and pivot points..
This is a good post that suites my day, Will be following it.
I like the Big Dogs because I trade like them
  • #65
  • Mar 9, 2009 3:47pm Mar 9, 2009 3:47pm
Great posts on the subject of position building guys. Thanks!

I haven't read all the posts here on the subject but, I'll be
lazy and ask my question since maybe you haven't covered it:

How about scaling in and then scaling back out?

Thanks!

(I'm going to start reading back thru the posts and pull this one
if it's been discussed already. )
  • #66
  • Mar 10, 2009 1:13am Mar 10, 2009 1:13am
Quoting FXSurfer
Great posts on the subject of position building guys. Thanks!

I haven't read all the posts here on the subject but, I'll be
lazy and ask my question since maybe you haven't covered it:

How about scaling in and then scaling back out?

Thanks!

(I'm going to start reading back thru the posts and pull this one
if it's been discussed already. )
That's interesting. I remember a few years ago I came across some PDF online that was outlining a technical strategy for RBC (The Royal Bank of Canada, Canada's largest bank). I don't know how I found it, and I wish I could find it again... Anyways, this is what I remember:

On a daily chart they had set up the standard SMAs: 200, 100, 50. I think that was it. They worked with 3 lots. When price crossed above the 50 SMA, they would buy one lot, when price crossed above the 100 SMA, they bought another. Finally, if price crossed above the 200 SMA, they would buy a third lot. The would close lots as they crossed the other way. I guess if they had 3 lots in, then scaled out two of them, then on the last lot, they would stop and reverse. At any rate, the basic idea was to scale in and out based on price crossing 3 SMAs. I never tried the strategy, but I just thought I'd share what I remembered about it since it is related to scaling both in and out.
  • #67
  • Mar 10, 2009 1:23am Mar 10, 2009 1:23am
In general, though, I think that scaling out will smooth out your equity curve. So this is a double edged sword. There are times when price will move in your direction a little bit, but not far enough for you to move your stop to break-even, then you eventually get stopped out. If you scaled out part of your position when price had moved a little bit in your direction, the total loss on that trade would not be so bad. (smoothing out th drawdown on your equity curve) At the same time, if it turned out to be a big winner, you would have made significantly less money because you wouldn't have the full strength of your original position. (smoothing out the draw up on your equity curve)

Again, it depends on the details of your strategy, but it seems to me, more and more, that scaling out, at any time (even if you had scaled in before), will cost you in the long run. Like birdt said, you're trading profit for comfort. If your strategy has a statistical edge and really does work in the long run, why not give it the benefit of the doubt and let it run full strength?

If you scale out and then price reverses on you, it would have been better to exit your entire postion.

If you scale out and then price continues, you have just cut (part of) a winner short.

Let's look at scaling in. A disciplined trader can trade as if he has no position on at all, even when he does. He does not let his position affect his judgement of where price is going. Suppose you do have a position on, a long position. Theyou see your setup again, indicating that you should go long. If you didn't have a position open, you probably would have opened one and gone long. Who cares if you alread have a position open; your strategy is giving you a signal to go long, so why not add to your long positon? Scale in. You might find yourself in an up trend that gives you multipl signals to go long (according to the rules of your stategy). If you keep scaling in, you will have built a strong position. Then when you eventually get an exit signal, exit your entire position and reap the benefits of multiple streams of profits. What a fantastic trade that would be, all based on one general move in the market.
  • #68
  • Edited 2:33am Mar 10, 2009 2:10am | Edited 2:33am
Quoting mathematician
thought I'd share what I remembered about it since it is related to scaling both in and out.
Thanks for sharing it!

I haven't really gotten into scale trading yet but, it seems like:

Scaling in is in agreement with Adding to Winners.

Scaling out is in agreement with Let Your Winners Run.

I guess that if either your intitial position hits a predermined cut-off or your net scaled position gets to near zero - getting flat all at once is in order. That way you make sure you don't violate the big one - Keep Your Losses small.

Hope your trading is going well!
  • #69
  • Mar 10, 2009 3:48am Mar 10, 2009 3:48am
Quoting mathematician
Let's look at scaling in. A disciplined trader can trade as if he has no position on at all, even when he does. He does not let his position affect his judgement of where price is going. Suppose you do have a position on, a long position. Theyou see your setup again, indicating that you should go long. If you didn't have a position open, you probably would have opened one and gone long. Who cares if you alread have a position open; your strategy is giving you a signal to go long, so why not add to your long positon? Scale in. You might find yourself...
I could be corrected on this but when it comes to scaling in, I believe I read this in the 'Disciplined Trader':

"Observe the market from a perspective as if you were not in a position, even when you are. You are not focused on money, but the structure of the market."

For me, this is difficult and will be until I master the mental aspect of having profits on the line. I would like to get to a place where, like shakesfx said, that trading had become boring. LOL
Balance in Everything
  • #70
  • Mar 10, 2009 4:14am Mar 10, 2009 4:14am
Quoting FXSurfer
Thanks for sharing it!

I haven't really gotten into scale trading yet but, it seems like:

Scaling in is in agreement with Adding to Winners.

Scaling out is in agreement with Let Your Winners Run.

I guess that if either your intitial position hits a predermined cut-off or your net scaled position gets to near zero - getting flat all at once is in order. That way you make sure you don't violate the big one - Keep Your Losses small.

Hope your trading is going well!
"Scaling in is in agreement with Adding to Winners."

Yes, Scaling in on a trade that's already winning seems like a good idea. However, scaling in on a trade that's already losing is averaging your losers, and that's a very bad idea. Although it might work most of the time, there is only one time when it doesn't work: And it's the last time you'll ever do it. (I've been there.)

"Scaling out is in agreement with Let Your Winners Run."

Well this is sort of half true, isn't it? You are letting your winner run in that you aren't closing the entire position (so some of it can run). But you are also cutting some of the position (so some of it cannot run, the part you already closed).
  • #71
  • Mar 10, 2009 4:19am Mar 10, 2009 4:19am
Quoting jtdt777
I could be corrected on this but when it comes to scaling in, I believe I read this in the 'Disciplined Trader':

"Observe the market from a perspective as if you were not in a position, even when you are. You are not focused on money, but the structure of the market."

For me, this is difficult and will be until I master the mental aspect of having profits on the line. I would like to get to a place where, like shakesfx said, that trading had become boring. LOL
Yes, "The Disciplined Trader" is where I heard that too (and Larry Levin's "The Secret to Emotion-Free Trading", but that book references Mark Douglas, so basically it's the same source). I agree, it is a very difficult skill to acquire.

Yes, I also hope I get bored very soon.
  • #72
  • Mar 10, 2009 4:28am Mar 10, 2009 4:28am
Quoting mathematician
"Scaling in is in agreement with Adding to Winners."

Yes, Scaling in on a trade that's already winning seems like a good idea. However, scaling in on a trade that's already losing is averaging your losers, and that's a very bad idea.
For sure! I didn't mean at all to imply adding to anything but a positive position. Even staying on at all, like I mentioned, with a less than net zero position wouldn't be something that I could do.

Quoting mathematician
"Scaling out is in agreement with Let Your Winners Run."

Well this is sort of half true, isn't it?
Yes. Only some sort of compromise that would allow you to still be in the market in case it took off flying.

I read another thread quite a while ago that had some good stuff on this subject. I'll try to remember where it was. I think that it was associated with the Pip Boxer EA development.
  • #73
  • Mar 10, 2009 4:36am Mar 10, 2009 4:36am
Quoting mathematician
Mark Douglas
I think that Douglas mentions improving his overall results once he began taking partial profits (scaling out) once a position went his way in order to help offset the costs of losers. Must have been in the Zone, I think.
  • #74
  • Mar 10, 2009 4:40am Mar 10, 2009 4:40am
Quoting FXSurfer
I think that Douglas mentions improving his overall results once he began taking partial profits (scaling out) once a position went his way in order to help offset the costs of losers. Must have been in the Zone, I think.
Yes, I recently started working with scaling out (with a new strategy too) and it has improved my overall results too. The funny thing is that I would have made more money in the end, if I hadn't scaled out. So I think I started doing well because I was more confident so I was trading better.
  • #75
  • Mar 10, 2009 4:50am Mar 10, 2009 4:50am
Quoting mathematician
So I think I started doing well because I was more confident so I was trading better.
I think that Douglas would agree with your conclusion!

Here's something I remembered on the subject. Just more food for thought from a good PDF. A good chance that you've seen it already.
Attached Image
Attached File(s)
File Type: pdf mantra.pdf   122 KB | 599 downloads
  • #76
  • Mar 10, 2009 6:39am Mar 10, 2009 6:39am
Quoting FXSurfer
I think that Douglas would agree with your conclusion!

Here's something I remembered on the subject. Just more food for thought from a good PDF. A good chance that you've seen it already.
Oh yes, I've read that. It's a great PDF indeed.

Clearly there are some great traders on both sides of the issue. I'll just have to try both. Test both strategies consistently and see which one works better for me. That's the best we can do, eh?

One thing about that particular quote: He says that you can exit half your position and then move the stop to break-even so you're playing with "the market's money." Well you can still have a risk-free position by moving your stop to break-even, even if you don't exit half your position.

He also says that the net effect of scaling out will be an increased average win per trade. That's not necessarily true. I've found situations where is decreases the average win per trade.
  • #77
  • Mar 10, 2009 1:30pm Mar 10, 2009 1:30pm
My first trade was a loss. No problem, I was wrong, just reverse. My next trade went well so I added in. That went well too, so I added in another. That went well too. I got excited and closed all my positions.

The first trade lost 10 pips.
The next trade I scaled in and made: 45 + 32 + 15 = 92 pips. The market only moved 45 pips, but I made 92 on that move because I scaled in.

Grand total: 82 pips in 17 minutes.

Dip your toe in the water. If it's too cold, wait or reverse. If it feels good, put your whole foot in. If it still feels good, jump in! Scale in. 100% out.
Attached Image (click to enlarge)
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  • #78
  • Mar 10, 2009 2:04pm Mar 10, 2009 2:04pm
Quoting mathematician
82 pips in 17 minutes.

Dip your toe in the water. If it's too cold, wait or reverse. If it feels good, put your whole foot in. If it still feels good, jump in! Scale in. 100% out.
There it is. The proof is in the pudding!

Note: No indicators, candles, trendlines or astrology. Well, maybe some astrology, I'm not sure. LOL!

  • #79
  • Mar 10, 2009 2:18pm Mar 10, 2009 2:18pm
Quoting FXSurfer
There it is. The proof is in the pudding!

Note: No indicators, candles, trendlines or astrology. Well, maybe some astrology, I'm not sure. LOL!

Yep! No indicators and no astrology either. The best part is capitalizing on a move when you get one.

In the past, I would always feel pressure to catch a big move so that I could make up for any losses I had. But when you scale in, you don't even need a very big move to make a lot of pips. My 10-pip loss occurred on about a 10-pip move against me. My 92-pip gain occurred on about a 45-pip move in my favour.

Naturally, your losses will be small because there won't be many lots involved (only add to your position if all of your lots are in-the-money). Your winners, on the other hand, can be quite big even on a small, directional move...and if it's a big move, wow!

There was no pressure in this trade because I knew it didn't have to move far for me to make a lot of pips. I'm starting to be able to trade as if I don't have any positions open, even if I do. Now it's time to practice, practice, practice!
  • #80
  • Mar 10, 2009 2:55pm Mar 10, 2009 2:55pm
So now that the thread is going good and you're into sharing
a good strategy that works:

About now's when the Prove-It-With-Statement Doubters, Professional Trolls and Frustrated Wannabes typically move in on your positive thread with the intention of killing it.

A suggestion:

Let's not feed them at all. Just ignore them(and their soldiers that they'll bring) and have the mods deal with them.

Just a suggestion but, I get so tired of them killing good threads.

Best regards and Thank You, Math!
Brent
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