Scale IN vs Scale out, and throw in no scaling too...
Scale in: Your biggest risk is at trade initiation, so why not start with your smallest lot exposure, and scale into your position as the underlying goes in your favor. The question here is: At what points do you scale in (1/3 initial, 1/3 @ 1ATR, 1/3 @ 2ATR; or, 1/2 initial and 1/2 @ 1ATR, etc)? And, when do you pull along your stops? At 1ATR, bring to BE, and when underlying at 2ATR bring to 1BE? This method, should, by far, give the biggest profit?
Scale Out: Why put on your most shares at the beginning of the trade, when you have most at risk? Anyway, suppose you did do this method... It should give you a higher Win/Loss ratio, lower DD than the other two methods, but also much less profit. Psychologically comforting, so to speak...But how/where would you scale out? Put full amount at launch of trade, take 1/3 off at 1ATR. take another 1/3 off at 2ATR, and let the last 1/3 ride? The initial stop would be at, say, some value below support (if going up), or some ATR multiple (say 1.5), then when the trade goes in your favor to 1ATR, you peel off 1/3 of your position, and pull your stop to BE, then when the trade gets to 2ATR, pull off another 1/3, and move your stop to 1ATR, then let the last third ride, with a, say, 1.5 ATR trailing stop?
All in-All out: You go all-in at the beginning, and, say, place your stop slightly below support, the previous bar low, 1.5 ATR,etc, and when the trade gets to, say, 1 ATR, you bring your stop to BE. From then on out you either trail with a, say, 1.5 ATR stop, look for overhead resistance (whole numbers, previous resistance) and potentially get out, or sense a momentum shift, and get out. This has a lower w/l compared to scaling out, higher DD, but more profits, depending on market condition (range bound or trending), and how you place your stops.
When I look at Harvey Walsh's YouTube videos, for example, he scales out, but yet all of his remaining scaled portions were winners! This proves the point to him, or it should, that scaling out was NOT the correct thing to do. He should have merely gone all-in and all-out...he would have made a lot more money each trading day he shows.
What do you think?
JohnYoga
