As it’s the weekend, I just thought I’d get some opinion out there on something that has been a bit of a dilemma for me, and that is whether it is best to scale out of a trade or keep a full contract to the end. I have tried both, and although strategies will of course vary according to the time frame one is trading, I have found that scaling out in 1/3rds reduces my profit at the end of the week compared with keeping a full contact, exiting at a pre-defined area where the chances of a re-tracement are high. Psychologically, I agree it is far easier to reduce the risk of one’s position after a certain number of pips, but apart from that, I think it makes little sense, because in effect what I am doing is entering a trade at a time when the risk is greatest, and then minimizing my profit/loss ratio by taking money off the table as the risk decreases, when in fact, though I have not done this yet, scaling in would seem like a much better strategy, as Jesse Livermore, the world’s greatest ever trader, used to do.
I’d be really interested for some thoughts on this, and to know what you have found works best for you. You know,one of the most important things I have discovered so far in my trading career, is not so much getting into a trade, it’s how best to maximise the pips that you secure for yourself once you are in it.
Pipslayer, I’m doing very well in my trading, but keep in mind, all I can do is share an opinion, and it may not be what is best for you.
I track 28 pairs for my personal trading. I will take a trade only based on what I deem as being a high probability of success. There are also has to be a certain confidence factor associated with the trade. As long as I have those variables working, there is no need to take out, or scale out any part of my trade. My question is, “Why?” If I know the pair is headed further in my direction, why would I want to take out any part of it? If it is approaching exhaustion, why do I want to hang on to any part of it?
An exception to my rule is that I might take out a trade when I know it is headed further in my direction when I see another pair that has even further obviaitons for my setup. If I have no room left on my platform, then a trade has to be closed in order to take advantage of the one with the impending move that would be strongly in my favor.
28 pairs, I’d be lost!! I concentrate on one at the moment, and that offers me more than enough opportunities during any one day. But hey, horses for courses. Yes, confidence in a trade is the key, if you think it’s going to run, or rather, if your particular set up is showing the momentum is with you, why scale out? And yet, how often does the price do exactly what you least expect it to do!! Thanks for the reply, and have a great week!
Yes, stick to one pair, there’s no wrong or right answer here, but I don’t scale out, but move your stops though, I think it’s swings and roundabouts, unless you’re longer timeframe trading where it might be an intrinsic part of the strategy.
Thanks for the reply. Yes, one pair until I am a lot more experienced. For me, win/loss ratio is everything. If I risk 15 pips with a $5 contract, unless I have a very good chance of at least doubling my risk on a win, I won’t take the trade. Taking some money off the table prematurely just makes that more difficult to achieve.
Be careful worrying about win/loss %. A trader can be profitable with only 35% winning trades, sometimes less, as long as they let profits run and cut losses short.
You’re right, minimizing your losses and maximizing the wins is the key. Buy actually, what I meant was that if my SL is 10-15 pips, which it normally is with my strategy, then the way ahead has to look good for at least 30 pips for the risk to be viable. I know people who scalp for 20 pips with a 20 pip SL, which seems kamikaze stuff to me.
Pipslayer, we may differ a lot in our opinions, and that is fine, because I think disagreeing in opinions can make for a good learning environment.
You say that a stop loss of 20 pips with a TP of 20 pips is kamikaze stuff. Let me first just respect your opinion, but let me ask why you think that. Let’s say 3 out of 4 of your trades are winners, then would that not be a good ratio to trade by?
Bottom line is gaining postive pips consistently.
BTW, just to address this comment, “how often does the price do exactly what you least expect it to do.” You have to be. bale to determione what price is going to do through the eyes of your methodology. This is why we have one. It helps us to determine what price will in advance.
Good day fxpipcounter. I agree, airing of views is always useful. As regards my comment about scalping, I still maintain that if a trader risks the same number of pips he or she intends to gain, then unless they are incredibly consistent and can maintain that 80% win rate you are talking about, then they will, in my opinion, end up losing money as the stress of continually seeing their pips whittled down by losses wears them down. So the 3 out of 4 wins sounds wonderful provided that can be replicated day in day out, and how many traders out there maintain such a favourable strike rate? Say your next 2 trades are losers, and you know that with the next trade, if it is a loser, you are back to square one! That is why, for most people, a 2/1 profit/loss margin is an absolute prerequisite to coming out ahead.
As to my comment which you quoted about the price doing what you least expect, as this is primarily a post for those of us still very much learning how to be consistently profitable traders, that oft quoted 5-10% of people out there, then I think most people out there can probably identify with this. After all, if the price did exactly as I thought it would do, every time I put on a trade, I’d be a millionaire by now, and so would everybody else! Heartiest thanks for you comment!
It depends on your system.
Personally, I believe the main point of scaling out is a psychological one allowing you to run your profits.
You need to monitor at least 100 trades recording your initial target area, your average scale out profit, how many pips the trade moved against you during the trade, how many pips it moved in your favour, work out Sharpe ratios, etc. then you will see where to improve. If you don’t do that then it’s just your head telling you you missed out on a few.
You are absolutely right, you need to determine the optimal method for securing the most number of pips you cam gain using your strategy, and this takes a great deal of time. Personally, and I have only been trading for 2 years and am still very much learning, I leave loads of points on the table, but that doesn’t bother me because I set my TP on what I believe will offer significant support/resistance, and wait for the next entry opportunity.
But a 70% win rate is just about as good as it gets in this game. Any less than that and it is a constant 2 steps forward, 1/34 steps back or worse, a bit demoralising I would have thought.
I used to always tell myself that the real way to trade is 1:3 risk reward, all in, all out type of trading. Mathematically speaking its just delicious, you can be wrong more often than right and still walk away with da money, and all in all out is maximizing your returns.
Then I made a difficult realization - I can’t really find such opportunities in a day trading situation. I’ve found that realistically speaking my best situations average at 1:1 risk reward. The problem is that you can’t force the market to give you what its not willing to give you. If the damned thing just won’t go past 1:1 most of the time, either you pass on it or you take the pain of getting stopped out repeatedly. Linda Raschke said that its a pretty clear relationship: the greater the risk/reward ratio, the lesser your success rate.
Personally I have started ‘scaling in’ and let me tell you, it is actually quite a rewarding strategy. Its easier, psychologically, to get into a trade, since if it immediately smacks against you you’re just out a part of the position. Its easier to add on as it moves in your favor. Also, if you start doubting a trade, you can just keep it onto the minimal size and just trail as opposed to adding more risk.
I also scale out, because sometimes I just get impatient as its extremely near the take profit and just stands there and waits. The one way I get myself to chill is to get out of part of my position and then I feel more comfortable that I’ve taken some risk off the table. I trail the stop up and then if it hits my take profit - great. If not, I’m happy that I locked something in and didn’t end up with a scratch just because the damned thing missed my take profit by 1 pip.
Tony, I’m not directing this post at you, I see you have the right attitude and approach, but for the benefit of struggling traders, there are enough opportunities there, if you spend 20 - 30 hours a week ‘trading’ you will get at least 1 very safe opportunity to get 30+PIPS, most often 3 or more, and if you think that’s not good enough, well there is no hope for you, if you don’t want to ‘work’ 30 hours a week to make quite unbelievable returns, then you are expecting too much.
But when I say 20 - 30 hours trading, that includes 1 and 2 hours break at a time during, my strategy allows me to look at my chart and I can easily tell that I won’t need to be at my computer for an hour or 2 at least.
And my strategy, it’s no secret, I keep mentioning it time and time again, I trade with trend off of support or resistance, the easier it looks the better the trade and the safer the trade, I use VSA to confirm, and if I were a little bit more disciplined I could probably increase my profits considerably, but now I have made it easier for myself by having a screenshot archive of what is now about 100 screens where I look at the current chart, then if I think it’s got potential I quickly scroll my archive for similar charts and all I do then is more or less copy the trade, you see - it’s visual point of reference, in my view it don’t matter how much you record your trades and see by how much you get stopped out and stuff, a picture speaks a thousand words.
So in a nutshell I trade off the 15m chart, S/R with trend, VSA to confirm trend continuation, that’s it no more to it.
