"There is one kind of exit that is designed to get rid of losses, but it totally goes against the golden rule of trading of cut your losses short and let your profits run. Instead, it produces large losses and small profits. This type of exit is one in which you enter the market with multiple contracts and then scale out with various exits...On a gut level, this sort of trading makes sense because you seem to be "insuring" your profits. But if you step back from this exit and really study it, you'll see how dangerous this type of trading is.
What you are actually doing with this sort of exit is practicing reverse position sizing. You are making sure that you will have multiple positions when you take your largest losses...It's the perfect method for people with a strong bias to be right, but it doesn't optimize profits or even guarantee profits. Does it make sense now?
If it doesn't make sense to you why you should avoid this sort of trading, work out the numbers. Imagine that you only take either a full loss or a full profit. Look at your past trades and determine how much of a difference this sort of trading would have made. In almost every instance when I've asked clients to do this, they become totally amazed at how much money they would have made holding onto a full position."
-- Van Tharp, pg 265, 1st ed of "Trade Your Way To Financial Freedom"
Pick a HIGHLY VOLATILE trading instrument (e.g., CL). Trade one contract. You can make a nice living doing that.
The following 5 users say Thank You to SteveH for this post:
I scaled out most of this year and some last year. It is a lot easier psychologically, but when I thought about all the 100% immediate losses that I was taking and the lack of larger winners I made the decision to go all in all out. Everything seems so give and take, if there is an advantage to either system, its small. I don't know what is the best yet and probably never will, but this is the system that I am testing right now and am trying to get a large sample size in order to correctly analyze my progress. I feel that all in all out is correct but like everything else in trading I am not 100% sold on anything.
I have been very busy recently relocating from California to Austin TX. I found a house now need to close and make the move. I have been paper trading and have been watching the market, I have not quit and will continue once the move is completed.
All the best!
The following user says Thank You to saiga for this post: