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Entering with 2 contracts vs Scaling In ....
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Entering with 2 contracts vs Scaling In ....

  #1 (permalink)
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Entering with 2 contracts vs Scaling In ....

Wondering if some fellow traders can shed some light, and highlight any positives ( benefits ) and or negatives to the following question ....

Do one of the following examples give us a better positive expectancy vs the other , or are they basically the same ?

Example / comparison of the two...

We are trading 2 contracts on the ES in both examples

Scenario 1:
We will enter the trade with 2 contracts and will take profits once are profit targets of 10 ticks ( first contract ) and 20 ticks ( second contract ) are hit

Are profit target is 10 ticks for the first contract, and 20 ticks for the second contract
( the stop loss is 10 ticks )

Scenario 2:
are profit target is also 10 ticks for the first contract, and are second target remains at 20 ticks as well
But.... this time , we only enter the trade with 1 contract
So after are first target of 10 ticks is hit, we will then Scale-In and add on are second contract ...thus holding both contracts at this point to are second profit target of 20 ticks
(the stop loss is 10 ticks in this scenario as well )


I realize that in the first scenario , that we theoretically have more " Risk " at stake , since we are entering with 2 contracts , and if incur a full stop out , that this will be more of a loss to us , then in scenario 2 ( where we enter with just one contract ) and scale-in with the second contract later in the trade ( once we hit are first target of 10 ticks )


Thanks to anyone who cares to help get my brain thinking on which one gives us the best positive Expectancy / more profitable ( assuming we hot both Profit targets in both scenarios )

If it helps.... I'm assuming that hitting the first target has a 60% win rate of being hit
and that the second target of 20 ticks has a 35% win rate of being hot

Thanks again - Michael

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  #3 (permalink)
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What people call "expectancy" is not an issue. Unless you have your criteria for entry nailed, which is accomplished via extensive testing, what you're looking at, after eliminating the hope, is a choice between losing on two contracts or losing on one.

Therefore, work on and collect stats on your entries. Then the question of all-in or scale-in will probably answer itself.

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Michael,

Take a look at this thread:

https://futures.io/traders-hideout/35452-why-you-should-add-winners-never-add-losers.html

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I hear that's a pretty cool thread :-)

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I use MAE and momentum to scale in...


...by momentum I mean quick ticks and (what I assume) hit jumping in or out.

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DbPhoenix View Post
What people call "expectancy" is not an issue. Unless you have your criteria for entry nailed, which is accomplished via extensive testing, what you're looking at, after eliminating the hope, is a choice between losing on two contracts or losing on one.

Therefore, work on and collect stats on your entries. Then the question of all-in or scale-in will probably answer itself.

good advice. any of the entry choice and exit choice is possible, but is our job to do sim testing and see it can be profitable
It takes a lot of time in testing, but I wont trust any method unless it yields +PnL for atleast 6months

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Thanks the TheShrike for the Link to SMCJB's great thread


So does one way take precedence over the other, as far as giving a trader a better Longer term positive Expectancy ?
The following three methods , assume the following ..... a 30 tick stop at entry , with a first target of 30 ticks ( assumes $60% rate of being hit/achieved ) and the second contract with a 60 tick target ( assumes a 35% rate of being hit/achieved )

Option #1. we enter and holding both contracts to each of the two targets.... ( AIAO )
VS
Option #2. entering with 2 contracts and " Scaling Out " ..... by entering with 2 contracts and scaling out of the position at the +30 tick target and the +60 tick target .... you know add to the position I.E. scale in at these points
VS
Option #3. By entering with just 1 contract and doing the opposite of the scaling out approach, and where you scaled out of the position at the +30 tick target and the +60 tick target .... you know add to the position I.E. scale in at these points


I think of it as the following.... If a trader truly has an Edge in the realm of being able to call Reversal points ( tops and bottoms, and can with a 60 - 70% accuracy rate, enters at the point that his trade reverses and goes on to becoming a true " Trending " trade , then the Scaling In or AIAO method would seem to be the best method for trade management.

Because if you scale out at the 2 pre-defined targets, then you no longer have any positions left on, to go for a Profit ( Greater than the second target of 60 ticks ) , where with the Scaling-In approach... you do
Side Note: (I understand that by NOT taking your profits at the 60 tick target, and trying to capture more profit, that these will skew the numbers for the comparison of the three different trading methods )

Because if a trader truly has a knack for entering trades, just before they reverse trend , and go in the opposite direction ,and at the same time, most of these trades end up going on to become Trending trades ( swing type trades ) , then that trader would want to have as many Lots on for the duration of these trend trades as possible..... so then it comes down to ....which method provides the best means to capitalize on the trader's innate ability to enter at the start of these nice size trend trading moves ?


Appreciate and welcome all input and discussion on the topic at hand

Thanks much - Michael

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