[uexkuell]

Originally Posted by BlueHorseshoe »

I thought it was about time that I did what
I’m asking others to do, and put forward some actual figures to support
my claims about the inadequacies of profitable scale-out strategies. So
here are the results of testing a simple stop-and-reverse day-trading
system, with various dollar profit exit methods.

The system sells when a 3 period moving average crosses above a 30
period moving average, and buys when a 3 period moving average crosses
below a 30 period moving average (ie it ‘fades’ the MA crossover). It
always trades 2 contracts, and it always uses a 4 point per contract
stop-loss. The back-tests all use the @ES e-mini futures contract over a
5 year period. 30 minute bars were used. No commission or slippage has
been deducted.

IMPORTANT: The profitability of this system is almost entirely due to
the fact that the MA length parameters have been heavily optimised. It
is used here as an example. Unless you want your broker to fall in love
with you, please do not attempt to use it in live trading or you will
most likely lose money. In the 4 months following the back-test period
this system has consistently lost money.

Here is the performance when we scale out of one contract for a 2 point
profit, and the other for a 4 point profit:

Total Net Profit: $60,925
Profit Factor: 1.17
Percentage Profitable: 58.7%

If anyone wants to see equity curves etc then let me know and I will
upload them.

Next are the results of scaling out of the first contract for a 4 point
profit, and the second contract for a 6 point profit:

Total Net Profit: $79,812
Profit Factor: 1.16
Percentage Profitable: 57.93%

Finally, we have the results of simply exiting both contracts for a 4
point profit – in other words, not scaling out at all:

Total Net Profit: $166,800
Profit Factor: 1.23
Percentage Profitable: 65.48%

I would like to point out that the ‘un-scaled’ 4 points per contract
profit target is not the optimum target (this would have been 7 points
per contract, which goes some way to explaining why the 6 point late
scale-out fared better than the 2 point early scale out).

This is why I think Tim Racette's advice in this thread to scale out is
poor - I believe that you will find that what you see above repeats
itself in pretty similar form for any strategy. And before anybody
starts quoting Karl Popper’s falsification principle at me, I am fully
aware that I can produce dozens of examples to support my argument, but
that it only takes one counter example to discredit it. . .

First this is not a mathematical proof (as you requested it from
others), just showing some numbers from an example.


The result of the example is in favor of the "exit all" strategy.
This is simply achieved by the parameters chosen (far from showing a
general rule or giving a proof):

Originally Posted by BlueHorseshoe »

I would like to point out that the
‘un-scaled’ 4 points per contract profit target is not the optimum
target (this would have been 7 points per contract.

So it is just logical that in an example where the optimum target is 7
points "scaling out" before target 7 points is inferior to "exit all" (as rluc99 understood).

In other words: An example was chosen where the parameters were in favor of the strategy proposed (exit all).


If one is not trading (or producing an example) in hindsight it's more like this:
1. The probality of finding a strategy that is good for just a few points is much higher than to find a strategy that is good for many points.
2. Trader enters (say with 3 contracts) when such a small target strategy that he found gives a signal
3. Trader exits 1 contract when small target reached, leaves 2 contracts, moves stop loss to break even
4. Trader lets the remaining contracts run and exits by some discretionary rules (e.g. exit 1 contract at noon, exit remaining last contract previous to close of the day....). He doesn't know where price will be by this time but once in a while he will hit a homerun.

That's trading without assuming one can "predict" something.

[Lornz]

Originally Posted by SunTrader »

Well I can state I have evidence too without providing any.

As I said, I just providing my opinion for what its worth. Obvious not much to you.

Most all adults in this country can get behind the wheel of a car. Most don't truly know "how to drive" though. Even less are qualified to drive in the Indy or Daytona 500. Those who can didn't learn in days/weeks or months.

All skilled occupations are the same.

Good trading. I've said enough.

I did not claim one could achieve mastery in such a short period of time, but I made the claim that it is possible to reach a level of proficiency where one could live off it.

The discussion is rather futile, at least with regard to most kinds of trading. Some have relevant degrees, others have not. Some are mathematically inclined, others detest math.

Just like in sports, the sciences, music, etc it is possible to be naturally suited for trading. It is probably a prerequisite for achieving mastery. For some reason most claim that trading is exempt from needing talent to excel, but it's pretty evident that they are wrong.

The lowest common denominator for trading is, of course, price action and/or scalping. It requires no formal education, but I would argue that it requires talent. It should not take more than a year to be able to make a living from it, if one is suited for that particular style of trading.

If you haven't gotten any viable ideas after watching price action for about 6 months, you are probably better off spending time pursuing other styles of trading.

Originally Posted by SunTrader »

Agree I am similar. There are also exceptions - a few that could teach others not long after they have learned something themselves.

But the vast majority (which I include myself) take time to truly do something well.

Anyone can click a buy/sell button. And after not too long a time become proficient. But I didn't get into trading to be proficient. I did to become the best I could be which means continuing to learn, learn, learn and not downplay the journey to others.

Many take that as being negative. So be it.

That is not true; most never even become proficient.

The few make a lot of money, while the rest are just losing money at various paces.

You are right about constantly adapting/learning, of course. I was not the one downplaying the journey of others...

[TheDude]

Originally Posted by BlueHorseshoe »

I totally agree with the sentiment of your post. However, finding people who are consistently profitable in their trading, who are willing to provide evidence of this, and who are willing to give any kind of mentoring or guidance to new traders, is extremely difficult.

I think we are at a far greater disadvantage in this respect than traders in previous decades: twenty years ago if you were really serious about becoming successful then you moved to Chicago, leased a seat at one of the exchanges for a few months, and gained instant access to some of the most profitable traders in the world.

What is the equivalent of that in 2012 for the screen trader?

LOL.

Not quite.

If you'd have walked on to the CBOT floor and asked anyone how to trade - even after a few months, the only thing you'd have learnt is that you're considered a mug. You'd have been raped. Trust me. I used to be a local.

Just like if you walk into any prop firm today and ask the top traders how to trade you'll probably be told to go where the sun dont shine.

Remember its a zero sum game less costs. Thats why no one is going to tell you sh!t unless they have a share in you're p&l. If they did tell you anything for free, you'd be taking a piece of their business/edge.

[TheDude]

Originally Posted by BlueHorseshoe »

I thought it was about time that I did what I’m asking others to do, and put forward some actual figures to support my claims about the inadequacies of profitable scale-out strategies. So here are the results of testing a simple stop-and-reverse day-trading system, with various dollar profit exit methods.

The system sells when a 3 period moving average crosses above a 30 period moving average, and buys when a 3 period moving average crosses below a 30 period moving average (ie it ‘fades’ the MA crossover). It always trades 2 contracts, and it always uses a 4 point per contract stop-loss. The back-tests all use the @ES e-mini futures contract over a 5 year period. 30 minute bars were used. No commission or slippage has been deducted.

IMPORTANT: The profitability of this system is almost entirely due to the fact that the MA length parameters have been heavily optimised. It is used here as an example. Unless you want your broker to fall in love with you, please do not attempt to use it in live trading or you will most likely lose money. In the 4 months following the back-test period this system has consistently lost money.

Here is the performance when we scale out of one contract for a 2 point profit, and the other for a 4 point profit:

Total Net Profit: $60,925
Profit Factor: 1.17
Percentage Profitable: 58.7%

If anyone wants to see equity curves etc then let me know and I will upload them.

Next are the results of scaling out of the first contract for a 4 point profit, and the second contract for a 6 point profit:

Total Net Profit: $79,812
Profit Factor: 1.16
Percentage Profitable: 57.93%

Finally, we have the results of simply exiting both contracts for a 4 point profit – in other words, not scaling out at all:

Total Net Profit: $166,800
Profit Factor: 1.23
Percentage Profitable: 65.48%

I would like to point out that the ‘un-scaled’ 4 points per contract profit target is not the optimum target (this would have been 7 points per contract, which goes some way to explaining why the 6 point late scale-out fared better than the 2 point early scale out).

This is why I think Tim Racette's advice in this thread to scale out is poor - I believe that you will find that what you see above repeats itself in pretty similar form for any strategy. And before anybody starts quoting Karl Popper’s falsification principle at me, I am fully aware that I can produce dozens of examples to support my argument, but that it only takes one counter example to discredit it. . .

Hello again,

sorry, i think you've missed the point.

Tim R was talking about eliminating price risk quickly, leaving the trader with execution risk only. I didnt read his post as the merits scaling out or not (or am I mistaken??).

The quicker a new trader eliminates as much risk as possible, the easier (IMO) he/she will be able to view the market objectively.

[Whidbey Island]

"thedude" I couldn't agree more....

[BlueHorseshoe]

Originally Posted by TheDude »

LOL.

Not quite.

If you'd have walked on to the CBOT floor and asked anyone how to trade - even after a few months, the only thing you'd have learnt is that you're considered a mug. You'd have been raped. Trust me. I used to be a local.

Just like if you walk into any prop firm today and ask the top traders how to trade you'll probably be told to go where the sun dont shine.

Remember its a zero sum game less costs. Thats why no one is going to tell you sh!t unless they have a share in you're p&l. If they did tell you anything for free, you'd be taking a piece of their business/edge.

I wasn't suggesting that you could sidle up to any local and they'd reveal exactly how they trade. I simply said that you had access to them. Are you trying to tell me that watching one of the best traders on the floor of the CBOT and trying to model them wouldn't be beneficial to most newbies?

If I came and stood next to you in the pits, then you wouldn't even speak to me, sure, but maybe I'd stand and watch you lose, watch how you responded to that loss, and think to myself "hmm, look at this guy, he just dealt with it calmly and now five minutes later he's got a profitable position on; last time I had a losing trade like that I just let it go indefinitely against me and hoped it would come back, maybe that wasn't the right thing to do . . ." Sounds like a learning experience to me.

[BlueHorseshoe]

Originally Posted by TheDude »

The quicker a new trader eliminates as much risk as possible, the easier (IMO) he/she will be able to view the market objectively.

I think you (and plenty of others on here) are confusing 'eliminating risk' with 'eliminating the opportunity for profit'. No risk means no reward guys, there's no two ways about it. If you start jamming your stop in at break even all the time then you're not doing yourself any favours, however good it feels.

If you're trading systematically, then there's no need to worry about 'viewing the market objectively'. Your views of the market will become irrelevant.

[BlueHorseshoe]

Originally Posted by uexkuell »

First this is not a mathematical proof (as you requested it from
others), just showing some numbers from an example.
The result of the example is in favor of the "exit all" strategy.
This is simply achieved by the parameters chosen (far from showing a
general rule or giving a proof):

Of course it's not a 'proof'. No matter how many examples I provide in favour of a generalising statement of this kind, then it will still take only one single counter example to disprove it. It's called the 'falsification principle'. I made it abundantly clear in my post that I was aware of this fact. I studied the philosophy of science for three years at one of the best universities in the world, so you'll excuse my being a little short tempered with your patronising and unnecessary need to point this out.

So I can't provide a proof for my claim, but what I am requesting from others, a proof of the incorrectness of my claim, could be very easily provided.

While I can assure you that I didn't sit down and deliberately search for a set of parameters that supported my claim, it may be that I have inadvertently done so. But where are the posts from any of you giving a concrete example of where scaling out does work? You can optimise away all you want, it doesn't matter - one concrete example and I have to shut up and go away.