Scale Out Systems

[Igor 10]

The Ins and Outs of Scaling Out

 

In general, scaling out means exiting part of your position at one price and part at another price. There may be several different exits for the same system. By comparison, scaling in means building a position by entering the market at different prices, also known as pyramiding. For purposes of this discussion, I'll assume that all entries occur at the same price; i.e., scaling out will be examined in the absence of scaling in.

 

Scaling out is often presented as a way to reduce overall position risk. For example, if you enter long with two contracts and the market moves in your favor, you might sell one contract at a fairly tight target, then let the other contract ride. If the market continues in your favor, you would benefit from the contract you still hold. On the other hand, if the market reverses, you at least profited from the first contract.

 

More precisely, here is the basic scale-out approach I'll discuss: Enter with the full position at one price. Set a money management stop for the entire position, and set a relatively tight profit target for one-half the position. If the target is hit, move the stop to breakeven and trail a stop for the remaining half of the position.

SCALEOUTSYSTEMS.ELD

scaleoutsystems.txt