My oscillator based trading strategy (see blog entry no. 11) gives me clear exit rules so it's really a question of box ticking!
However, it does seem, from my understanding of it, to work better scaling out at different levels using 3 lots.
I hope this thread will be promising too.
F
The interesting thing about scaling out is that it doesn't necessarily mean your profits are bigger compared to NOT scaling out and taking all your profits at once. This depends on
- where do you scale out the last part of your position?
- what if after taking profit at the first target, price goes back to your entry point?
- what is the % of trades that reach your second target?
Situation 1
Consider for instance that 70% of your winning trades go back to breakeven after your first target was hit. The other 30% hit your second target. Suppose your first (fixed) target is 10 points away and (to make thing simple) your second is at a
fixed 25 points.
Suppose we have a batch of 100 winning trades and we trade 2 lots:
- By scaling out:
70% hit target 1 then reverse back to your entry: 70 x 1 lot x 10 + 30 x 1 lot x 0 = 700 pt
30% hit target 2 after hitting target 1: 30 x 1 lot x 10 + 30 x 1 lot x 25 = 1050 pt
Total points = 1750pt
- Not scaling out:
We exit all of our position at target 2. We move our stop to breakeven after price has passed the "virtual" target 1 point:
70% go back to your entry: 70 x 1 lot x 0 = 0 pt
30% hit target 2 with both our lots: 30 x 2 lot x 25 = 1500 pt
Total points = 1500pt
Situation 2
Consider for instance that 50% of your winning trades go back to breakeven after your first target was hit. The other 50% hit your second target. Suppose your first (fixed) target is 10 points away and (to make thing simple) your second is at a
fixed 20 points.
Suppose we have a batch of 100 winning trades and we trade 2 lots:
- By scaling out:
50% hit target 1 then reverse back to your entry: 50 x 1 lot x 10 + 50 x 1 lot x 0 = 500 pt
50% hit target 2 after hitting target 1: 50 x 1 lot x 10 + 50 x 1 lot x 20 = 1500 pt
Total points = 2000pt
- Not scaling out:
We exit all of our position at target 2. We move our stop to breakeven after price has passed the "virtual" target 1 point:
50% go back to your entry: 50 x 1 lot x 0 = 0 pt
50% hit target 2 with both our lots: 50 x 2 lot x 20 = 2000 pt
Total points = 2000pt
Situation 3
Consider for instance that 40% of your winning trades go back to breakeven after your first target was hit. The other 60% hit your second target. Suppose your first (fixed) target is 10 points away and (to make thing simple) your second is at a
fixed 20 points.
Suppose we have a batch of 100 winning trades and we trade 2 lots:
- By scaling out:
40% hit target 1 then reverse back to your entry: 40 x 1 lot x 10 + 40 x 1 lot x 0 = 400 pt
60% hit target 2 after hitting target 1: 60 x 1 lot x 10 + 60 x 1 lot x 20= 1800 pt
Total points = 2200pt
- Not scaling out:
We exit all of our position at target 2. We move our stop to breakeven after price has passed the "virtual" target 1 point:
40% go back to your entry: 40 x 1 lot x 0 = 0 pt
60% hit target 2 with both our lots: 60 x 2 lot x 20= 2400 pt
Total points = 2400pt
Conclusion
I realize these are a lot of numbers... But depending on how much trades you have that travel significantly far enough scaling out is not necessarily to best way to maximize on profits as is shown by situation 3.
These examples are hence very dependent on two parameters
- the win% ratio of your system
- the offset between T1 (= target 1) and T2 (=target 2)
This thread isn't meant to go into the numbers in depth, I'm sure there are statistical methods to analyze which method yields the best results under which circumstances... Nevertheless I hope these examples will be helpful for those who are trying to improve on their strategy.
. It is probably the most likely scenario in the absence of particular moves, news announcements, etc. 
