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Sizing of runner position?
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Sizing of runner position?

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Sizing of runner position?

Hi guys, have a question for those more mathematically inclined.

I have been applying a "runner" position for my trading and have a small sample size of 30 trades. The results are as follows:
EV Exit 1: $10 / trade
EV Exit 2: $30 / trade

(I know this is a horribly small sample size, but I guess for the question it should not matter. I will be performing another 70 trades using the same trade management technique before coming to a conclusion.)

My question is this: should this result be relevant for my sizing of the runner position? I am now currently sizing it 1:1 - 1 lot for first exit, 1 lot for 2nd, and the results are shown above. Ignoring all psychological consequences (assuming I manage the runner position as optimally as possible whether it is 2lot or 1lot), how should I size my runner position?

Given the above result, is it mathematically more optimum for me to do All in All Out - managing every trade as I would as my "runner", or should I be sizing the position based on the ratio of expectancy? Which if the results persist for the entire 100 trade sample, I should be sizing my runner position 3:1 vs the first exit.

I have a hunch that I should be doing AIAO, working on my psychology instead of using a dual target system for maximum profit. However, I am curious if a 3:1 may actually work better given that some of my runners are stopped out for BE while the first position is hit.

Or is everything I said above just a mere play on psychology - it is psychologically easier to manage a trade after risk has been taken off the table - and for maximum profit, I should always do AIAO.

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Bump!


Hi guys, apologies for a shameless bump.
Does anyone have any opinions on the above?

I am pretty much of the opinion for AIAO for maximum expectancy, but would love to hear affirmations/arguments against my stance.
That said, I think a scaling out approach may lead to better results, purely by virtue of psychologically related factors.

Thank you for your help!


Last edited by strikebackfast; August 11th, 2013 at 11:55 PM.
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Generally you'll find people saying that an all in - all out approach is superior from a mathematical point of view. And that is probably true in many cases. However it depends a lot on how you determine your targets and how often they are reached. Larger targets are reached less often but yield greater profit when they are finally reached.

I did an analysis on my own trading using 151 trades to determine which approach is better. You can read about it here

Based on my results, there wasn't a huge difference and so I decided to stick with my current all in - scale out approach.

The only way to truly know which approach will be best for your trading style will be to wait until you have a large enough sample size, and then go through your stats using different exit scenarios.

One thing to keep in mind is that the psychological benefits of scaling out should not be ignored.

Diversification is the only free lunch
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strikebackfast View Post
Hi guys, have a question for those more mathematically inclined.

I have been applying a "runner" position for my trading and have a small sample size of 30 trades. The results are as follows:
EV Exit 1: $10 / trade
EV Exit 2: $30 / trade

...

I'm not sure whether I understand your question correctly, but I assume the risk in both scenarios is the same, since we are talking about the same setup.

If the risk is the same and the EV calculation has been correct, then I would trade with Exit 2 and AIAO only. Exit 1 can only make sense if you "need" it from a psychological point of view in order to trade well over time.

Yes, AIAO is superior compared to scaling due to the simple fact that the risk for scaled trades is usually the same as with your "ultimate" target. Hence, the risk/reward and the EV is worse for the scaled trades. Simple math.

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Thank you all for your answers.

I think I am kind of avoiding the psychological problem of holding out my trade for runners, being very inclined to reduce risk whenever possible.

I am by nature a very risk adverse person, and wouldn't actually mind sacrificing some profit just to lower the variance of my trading.

That said, I believe this is actually a psychological problem that I would have to address soon - if I truly want to be a really good trader.

I am experimenting with a discretionary style of exit, using order flow/price action/support resistance zones to determine a suitable point of exit. It is extremely difficult to say the least - much more difficult than finding a point of entry. I guess I'm starting to understand professional traders when they say you never truly master the exit.

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Quoting 
Yes, AIAO is superior compared to scaling due to the simple fact that the risk for scaled trades is usually the same as with your "ultimate" target. Hence, the risk/reward and the EV is worse for the scaled trades. Simple math.

I too think (know) that AIAO is better, but your "simple math" is wrong.
With your math why not make the target even bigger? and then even bigger?

RR has no meaning without %Win.

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Baruchs, yes you are right. However I was basing my math ( I am sure karoshiman was too) using expected value, which is a function of win% and win$. Hence, using math, if my EV is skewed towards exit 2, I should manage my trades to exit all at target2.

I think its just a mere misunderstanding. Cheers !

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strikebackfast View Post
Baruchs, yes you are right. However I was basing my math ( I am sure karoshiman was too) using expected value, which is a function of win% and win$. Hence, using math, if my EV is skewed towards exit 2, I should manage my trades to exit all at target2.

I think its just a mere misunderstanding. Cheers !

Sent from my Nexus 7 using Tapatalk 4

@strikebackfast & @baruchs:

That was what I meant with "if... the EV calculation has been correct" in my post.

I assumed a proven or tested setup with certain win% and certain risk… not randomly making up some targets, just to "calculate" better EV. That makes obviously no sense.

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runners


There is an interesting discussion about runners in the book "The Very Latest E-mini trading" (see Amazon link here. Truth is, the point of runners is to capture the excess profit potential unseen in probability/EV calculations, no? This is an interesting problem I'm trying to solve myself. I tend to think keeping 1/4-1/3 of original position size for runners, and moving stops to BE and subsequently trailing the stop higher/lower as the position moves in your favor.

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