All in all out vs. scaling in and out - Psychology and Money Management | futures io social day trading
futures io futures trading


All in all out vs. scaling in and out
Updated: Views / Replies:26,277 / 130
Created: by caprica Attachments:9

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

View Poll Results: All in all out or scale in and out?
All in, all out 79 33.05%
All in, scale out 103 43.10%
Scale in, scale out 57 23.85%
Voters: 239. You may not vote on this poll

Reply
 9  
 
Thread Tools Search this Thread
 

All in all out vs. scaling in and out

  #41 (permalink)
Elite Member
St. Petersburg, Fl
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: CQG
Favorite Futures: ES,NQ, YM, CL,6E
 
ollie's Avatar
 
Posts: 176 since Apr 2010
Thanks: 21 given, 172 received

Stop Loss


emini_Holy_Grail View Post
what is SL? and what happens both hits SL?


I use range bars aset at 4. SL is 6 ticks, If SL is hit it's $120 loss.

I know what you will respond. You are risking $120 loss to make $150 profit. Why not buy 1 contract, at 5 tick profit buy 2nd contract and sell both at 10 tick profit. It's the some 15 tick profit, however it is reducing potential loss by half. Your point is very well taken and very valid.

I have been doing it my way since the beginning, and it wasn't until I wrote out "your respones" that I see a way to reduce potential loss. That's the great thing about trading, ask ten people how they do it and you'll get ten different answers and none of them wrong. Howeve we can all learn from one another.

Keep things as simple as possible, but no simplier. Albert Einstein
Reply With Quote
 
  #42 (permalink)
Just starting out...
Mysore, India
 
Futures Experience: Intermediate
Platform: NT
Favorite Futures: ES
 
Posts: 1 since Aug 2010
Thanks: 10 given, 1 received


Fat Tails View Post
Absolutely. There is a known human deficiency called loss aversion. Has to do something with anchoring. On the profitable side of the trade there is the irresistable pull to lock in profits.

If you scale out at a near profit target, say you take profits on your long position 10 ticks above the entry level for half of your position and you adjust the stop loss of the second half of your position to 9 ticks below the entry, you have left the danger zone.

You are now playing with the money of the house, can get yourself a cup of coffee. The worst that can happen now (technical problems or volatile market conditions excluded) is a break-even. So what.

The irresistible pull to take your profits is now cured, and you can stay in for a larger gain. It is hard to cut losses short and let the profits run, because it is counterintuitive.

Fat Tails.

I have been reading this thread with great interest. As a purely systems trader, not looking for psychological comforts in each trade, but looking for over all 'edge" in a series of trades, I have been gravitating towards all in and all out approach, using the best possible risk to reward strategies over time.

However, that being said, I ran into this article by Dean Hoffman:

(I am not able to include the link as I am a new member of this Forum but you can Google "Improving Performance Results by Dean Hoffman" and this will take you directly to the pdf article.)

which finally seems to give a possible argument for scaling out (partial exits) based purely on reducing drawdown and increasing the Net Profit to Drawdown ratio. I find this possibility fascinating and wonder if any one has tested their system with this variation as shown. (As you can see no discussion on psychology or comfort levels, but just stats)

Would love to hear people's actual systems experience on this.

Reply With Quote
The following 2 users say Thank You to Systems trader for this post:
 
  #43 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,653 since Mar 2010
Thanks: 4,226 given, 25,602 received
Forum Reputation: Legendary


Let me add the document here, so it can be discussed.

Attached Thumbnails
All in all out vs. scaling in and out-dean-hoffmann-improving-performance-results.pdf  
Reply With Quote
The following 3 users say Thank You to Fat Tails for this post:
 
  #44 (permalink)
Elite Member
Israel
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: pfg
Favorite Futures: eminis
 
Posts: 323 since Jun 2009
Thanks: 6 given, 206 received


Systems trader View Post
Fat Tails.

I have been reading this thread with great interest. As a purely systems trader, not looking for psychological comforts in each trade, but looking for over all 'edge" in a series of trades, I have been gravitating towards all in and all out approach, using the best possible risk to reward strategies over time.

However, that being said, I ran into this article by Dean Hoffman:

(I am not able to include the link as I am a new member of this Forum but you can Google "Improving Performance Results by Dean Hoffman" and this will take you directly to the pdf article.)

which finally seems to give a possible argument for scaling out (partial exits) based purely on reducing drawdown and increasing the Net Profit to Drawdown ratio. I find this possibility fascinating and wonder if any one has tested their system with this variation as shown. (As you can see no discussion on psychology or comfort levels, but just stats)

Would love to hear people's actual systems experience on this.

I'm a system trader myself, and I strongly believe that scaling In or Out is WRONG!
My argument is this:
You can split the scaling trade into two trades. One with a small profit and one with a bigger profit and a break even if you like. Now back test each trade. Without knowing the specific setup, I know that one of the trades will be much better than the other, so why do both?
In another thread I explained that the biggest profit you get by combining several strategies or instruments or time frames, but you need to have non correlated or negative correlated outcomes. Scaling out/in will be very strongly correlated.

Baruch

Reply With Quote
The following 4 users say Thank You to baruchs for this post:
 
  #45 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,653 since Mar 2010
Thanks: 4,226 given, 25,602 received
Forum Reputation: Legendary

It is not an easy task to comment on that article

(1) Dean Hoffman presents a trend following system applied to a portfolio with the following key figures:

Net profit $ 673,307, Max. Drawdown $ 60,504, Winning percentage 36.1%, Avg $Win to Avg$Loss 4.44

(2) Then he suggests trading two contracts instead of one and comes up with the key figures

Net profit $ 1143,307, Max. Drawdown $ 69,015, Winning percentage 38.0%, Avg $Win to Avg$Loss 3.75



Are the figures correct?

At first glance, the figures are consistent. Winning percentage and Avg $Win to Avg $Loss and profit per contract are similar for both systems. The striking point is the reduced drawdown. And of course this is possible as well, so I think that the figures are correct and consistent.


Does the second system catch superior returns without increasing risk?

What is not obvious is that the max. drawdown is a proxy for risk-of-ruin and that the superior return of the second system is risk-free and you are therefore entitled to trade 2 contracts instead of one without increasing the risk.


2 contracts of one instrument traded

Let us imagine that we trade 2 contracts of a single instrument. In this case the drawdown is the result of a series of n consecutive trades with a combined loss, which is the drawdown. Now, if you scale out 1 contract by using a first profit target, some of these losses might have been reduced to less than half the size (as we have already scaled out half the position with a small winner and the loss is reduced to 50%), others would be double size (as they did not reach the scale out target).

Let us assume - for simplicity reasons - thath the max. drawdown was made up of 4 consecutive losers, out of which 2 never reached the first profit target and 2 others did. In this case the No-Scale-Out-System trading 2 contracts would have made a loss of 4*2R = 8R, while the Scale-Out-System would have made a loss of 2*2R + 2*R - 2*PT1 = 6R - 2PT1. If you further assume that the scale-out profit target sits at +R, the drawdown of the second system becomes indeed 4R, which is half of the drawdown of the first system.

So the dispersion of the results of the second system is indeed smaller. The standard deviation of the returns from the expectancy is smaller, and the Sharpe Ratio is better. Both allows for trading larger size.


Add the Portfolio Effect

If you only trade 1 instrument and increase size, the results are 100% correlated with themselves. The portfolio effect -trading different instruments that are less than 100% correlated - further reduces risk. This again allows to increase size.

I do not know whether the presented system trades only 1 contract at the time or whether it allows to open several positions over different instrument with a low correlation of returns. But I believe that the drawdown should be further reduced by the portfolio effect, if several positions are held at the same time.


Conclusion

The improved risk profile is due to the effect that negative and positive trades can cancel out

- if you trade 2 different system with a sufficiently low correlation
- if you trade a portfolio of different instruments

The catch with the described system is that it does have a low winning percentage and will therefore likely have a series of 6, 7 or 8 consecutive losers. So the scaling-out will have a positive impact on risk even without the portfolio effect. This would not necessarily be the case for a scalping system with a high winning percentage.
But system with a higher winning percentage have lower drawdowns anyhow, so that you can increase the size without scaling out.

Yes, I agree with the author.

Reply With Quote
The following 4 users say Thank You to Fat Tails for this post:
 
  #46 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,653 since Mar 2010
Thanks: 4,226 given, 25,602 received
Forum Reputation: Legendary


baruchs View Post
I'm a system trader myself, and I strongly believe that scaling In or Out is WRONG!
My argument is this:
You can split the scaling trade into two trades. One with a small profit and one with a bigger profit and a break even if you like. Now back test each trade. Without knowing the specific setup, I know that one of the trades will be much better than the other, so why do both?
Baruch

The question here is indeed correlation. The performance maybe greatly enhanced, if not correlated. I think I showed with my previous post, that scaling-out / drawdown can be led back to the following two cases

(1) prior to drawdown 1st profit target is reached -> 100% negative correlation, drawdown is reduced
(2) prior to drawdown 1st proft target is not reached -> 100% positive correlation, drawdown is identical

I think that the positive effect on risk cannot be derived from a single trade, but a series of trades. It is the series correlation that changes. The correlation is further reduced, if a portfolio of instruments is traded.

But your conclusion is correct. Rather than scaling out, you can find an entirely different strategy, which is less correlated with the original one than the scale out strategy and this will improve the Sharpe Ratio even more!

But in case you are trading a portfolio, the scaling out is already good enough, to reduce your risk by 50%, if Dean Hoffmann's calculations are correct.

Reply With Quote
The following user says Thank You to Fat Tails for this post:
 
  #47 (permalink)
Elite Member
Israel
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: pfg
Favorite Futures: eminis
 
Posts: 323 since Jun 2009
Thanks: 6 given, 206 received


Fat Tails View Post
The question here is indeed correlation. The performance maybe greatly enhanced, if not correlated. I think I showed with my previous post, that scaling-out / drawdown can be led back to the following two cases

(1) prior to drawdown 1st profit target is reached -> 100% negative correlation, drawdown is reduced
(2) prior to drawdown 1st proft target is not reached -> 100% positive correlation, drawdown is identical

I think that the positive effect on risk cannot be derived from a single trade, but a series of trades. It is the series correlation that changes. The correlation is further reduced, if a portfolio of instruments is traded.

But your conclusion is correct. Rather than scaling out, you can find an entirely different strategy, which is less correlated with the original one than the scale out strategy and this will improve the Sharpe Ratio even more!

But in case you are trading a portfolio, the scaling out is already good enough, to reduce your risk by 50%, if Dean Hoffmann's calculations are correct.

Hi Fat Tales,
This is not how I look @ correlation.
Lets examine a scaling out trade in which after taking the first target you move your stop to break even (just because this is what most people do, although its wrong too)
In this trade we can have 3 outcomes:
1. We were stopped out - correlation = 1
2. We reached the high target - correlation = 1
3. We reached first target, moved stop to break even and were stopped out - correlation = 0.
So the cumulative correlation is close to one.
But I don't measure the correlation this way, because I don't do scaling. I measure the correlation of daily PnL of different strategies / TF / instruments. Thats what is important.
So if in theory you have two strategies with correlation = -1, that means that on each day if you are in profit in strat#1 you lose in strat#2 and visa versa.
In this situation even if one of the strategies is a losing strategy you are much better off by trading it together with the winning one. But if the strategies are strongly correlated, as scaling is, then don't trade the losing strategy!

Baruch

Reply With Quote
The following 2 users say Thank You to baruchs for this post:
 
  #48 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,653 since Mar 2010
Thanks: 4,226 given, 25,602 received
Forum Reputation: Legendary


baruchs View Post
Hi Fat Tales,
This is not how I look @ correlation.
Lets examine a scaling out trade in which after taking the first target you move your stop to break even (just because this is what most people do, although its wrong too)
In this trade we can have 3 outcomes:
1. We were stopped out - correlation = 1
2. We reached the high target - correlation = 1
3. We reached first target, moved stop to break even and were stopped out - correlation = 0.
So the cumulative correlation is close to one.
But I don't measure the correlation this way, because I don't do scaling. I measure the correlation of daily PnL of different strategies / TF / instruments. Thats what is important.
So if in theory you have two strategies with correlation = -1, that means that on each day if you are in profit in strat#1 you lose in strat#2 and visa versa.
In this situation even if one of the strategies is a losing strategy you are much better off by trading it together with the winning one. But if the strategies are strongly correlated, as scaling is, then don't trade the losing strategy!

Baruch

You made a slightly different assumption, with the adjustment to breakeven, which is probably a better idea.

But in my opinion you missed the principal point, which is the correlation not between strategy one (original) and strategy two (taking profits early) but

- the correlation between different consecutive trades, leading to the interruption of a chain of losers
- the correlation on the portfolio level, when the 2 strategies are applied to various instruments at the same time

Both effects contribute to reducing the dispersion (standard deviation of the results from the mean expectancy) and therefore reduce the risk of a major drawdown and the risk of ruin.

Reply With Quote
The following user says Thank You to Fat Tails for this post:
 
  #49 (permalink)
Elite Member
Wodonga Australia
 
Futures Experience: Intermediate
Platform: NT, MT4
Broker/Data: tba
Favorite Futures: tba
 
Linds's Avatar
 
Posts: 290 since Jul 2010
Thanks: 348 given, 277 received

I havent got hard statistical data to back this up but based on my experience and learning, my opinion is that all in / scale out can work strategically for advanced traders but mostly it is used by learning traders to ease the short term psycholgical stress of being in a trade. In this case I would argue that it is a counter productive strategy because a learner most likely wont have above 1:1 risk/reward on a set of trades. A couple of full stops will wipe out several small wins. I think if a trader has achieved a very high win % to the first profit target level ( say around 80% or better) then a scale out approach can work quite well by taking lots off at predefined SR levels and catching the odd big runner...but for those trading a lower win % method ( like 50%) I doubt it is of any use except to feel good intratrade while you watch your account balance fall.

Reply With Quote
The following 3 users say Thank You to Linds for this post:
 
  #50 (permalink)
Elite Member
Dallas,TX
 
Futures Experience: Intermediate
Platform: NinjaTrader, OpenQuant
Broker/Data: Zaner/Zen Fire
Favorite Futures: ES,6E,6B,GC,CL
 
Posts: 590 since Nov 2009
Thanks: 176 given, 116 received

All in all out vs. scaling in and out


Pl pardon my ignorance.

can someone explain how this works "All in all out vs. scaling in and out"
thks and appreciate

Reply With Quote

Reply



futures io > > > All in all out vs. scaling in and out

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Scaling-in/Adding near your average MAE; why not? Gary Psychology and Money Management 40 August 29th, 2017 10:31 PM
NinjaTrader Chart Scaling msedlak40 NinjaTrader 7 November 24th, 2012 09:09 PM
Scaling in and scaling out...when the total is NOT the sum of its parts RM99 Psychology and Money Management 8 April 11th, 2012 10:21 AM
NT7 Scaling on charts grego NinjaTrader 3 November 28th, 2010 06:40 AM
Best Practices for Scaling In/Out with Ninja DOM HJay Traders Hideout 1 August 8th, 2009 04:19 PM


All times are GMT -4. The time now is 11:05 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-18 in 0.21 seconds with 21 queries on phoenix via your IP 54.226.113.250