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Questions about RR and scaling out, Spreadsheet provided
Started:October 20th, 2012 (02:01 PM) by treydog999 Views / Replies:422 / 1
Last Reply:October 20th, 2012 (02:01 PM) Attachments:1

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Questions about RR and scaling out, Spreadsheet provided

Old October 20th, 2012, 02:01 PM   #1 (permalink)
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Questions about RR and scaling out, Spreadsheet provided

I am trying to tinker with scaling out, I have always been an all in all out trader. I have created spreadsheet, what I am trying to do is look at the different stages of my proposed trade and determine the Reward Risk ratio (yes i put reward on top :P ) and assuming 50/50 movement what the probability to target would be.

My proposed scenario that I am trying to analyze :

2 Contracts all in at a certain price. (this is to be trading in the YM but i dont think it matters)

My SL is at -10 ticks away from both entries with 2 targets 1 at 10 ticks and 1 at 20 ticks.

When we price moves 6 ticks in my favor, I move my stop up to -5 ticks on both contracts.
This to me gave me a 2:1 reward risk ratio to the first target. risking 5 to gain 10. However price had already moved 6 ticks in my favor. So really I am risking 11 to make 4. which is a 1:3 reward risk ratio, but assuming a 5050 price movement split i have 73% chance of hitting target. This does minimize the actual risk that can occur in the trade but the trades current RR is out of whack. Thoughts?

Now Assuming the 1st target is hit, I have now moved my stop to Breakeven and have locked in 10 ticks of profit. So I now have a free ride for an additional 20 ticks - commissions and fees. Now this is a risk free trade. Now price had traveled 10 ticks to the 1st target and now has 10 ticks to the 2nd from its current position. That gives me a 1:1 RR ratio and 50% for each.

Overall i am risking 20 ticks to gain 30, best case scenario. Which is 1.5:1 Reward Risk at the initial stage of entering the trade. At the 2nd stage, Price has moved 6 ticks in my favor, I am now risking 11 ticks for 13. For a 1.18:1 reward risk ratio. Of which really only 5 ticks actually deplete my capital. Once my 1st target is filled, I am now risking 1:1 again 10 on each side, however there is no actual capital at risk and the trade is a guaranteed winner.

My question is, Do you incorporate paper profits into your reward risk calculations? I am trying to understand the effects of trade management and scaling out, however the paper profits really throw me off. How do you guys set up simple scale outs and manage risk?

I have included a spreadsheet that shows my work.

Attached Files
Register to download File Type: xlsx Scaling Spreadsheet.xlsx (9.6 KB, 20 views)

Last edited by treydog999; October 20th, 2012 at 02:13 PM. Reason: accidently pressed enter before i was finished
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Old October 20th, 2012, 02:01 PM   #2 (permalink)
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