scaling out

[wellray]

Hi, I've read a few of the good journals and recently was in a webinar of a trading room with the pros calling the trades. The most important piece of info for me from these was that they scaled out 30-60% of the trade asap. to remove the risk from the trade and essentially when they were wrong and the market reversed, they were stopped out at B/E mostly. I've been using IG and seems the only way to do this is by setting two orders going.
I appreciate they're selling contracts /lots but thats fairly big bucks to trade those.

Does anyone have a scale out method on an SB platform?

 

[Hotch]

I'm pretty sure with IG you can scale out without doing multiple orders, only you can't set targets for partial amounts.

As long as you're traded 2x the minimum (might be less), you can just go to close the order and change the size you're closing.

 

[Pi3141]

Ive also noticed some pros scale out the trade really quickly. Recently I was reading phil newton's breakout strategy, and he scales out 2/3 of his position at 50% of the stop loss size. But I'm confused because I thought one of the golden rules of trading was to let winners run. By scaling out winners quickly doesn't that have a negative effect the risk/reward ratio?

Any help on this matter will be greatly appreciated

 

[wellray]

Ive also noticed some pros scale out the trade really quickly. Recently I was reading phil newton's breakout strategy, and he scales out 2/3 of his position at 50% of the stop loss size. But I'm confused because I thought one of the golden rules of trading was to let winners run. By scaling out winners quickly doesn't that have a negative effect the risk/reward ratio?

Any help on this matter will be greatly appreciated

It is but THE golden rule is protect your capital. if you're getting stopped out each time for a loss that hurts. if even on the trades where the breakout reverses, you're at breakeven you'll feel a lot better. I saw the 2/3 scale on the pozzyp thread here - and thats a really excellent thread.
The difficulty is that to scale out, usually means you've opened a few contracts and are closing one - but each contract is usually $10 per pip unless its mini-lots. so basically I'm trying to set 2 bets and close one with a limit the size of the stop

 

[shadowninja]

With IG you can specify any size to exit with. So you could close £21.78/pip if you so wished providing you bet at least £22/pip.

 

[nunrgguy]

It is about letting your winners run.
Say we want to attempt to hold our trade for 1 day. Now most of use would say to do that we're going to trade on the hourly or 4 hourly chart and have a stop size of what, going on average range on hourly, say 2 times that, 50 to 100 pips? To capture how many? So our R:R if we win end up being say 1:1-2:1. Not that impressive. We can then compound the error by moving our stop to break even or trailing our stop to obvious levels, constantly getting stopped out for our troubles.

Now consider this idea. We scalp the 5 min with 10 pip s/l for 1% risk. We make 1%. Then on our next trade we use the same position sizing but this time use our additional 1% and invest it back into our stop loss i.e. we now use the same position sizing but now have a 20 pip stop, with a 20 pip stop we should be able to hold for longer. Will this be an easier trade to profit from? If we lose we still only lose 1% of our capital. Trying it any other way will lead to constant whipsawing.

OK. Now scaling..with that in mind. Say we want to hold for a day but we're trying to enter on 5 minute, for argument sake using a 10 pip stop. Assuming we are good scalpers with a very high win rate, big assumption, but in theory it's easier to gain 10 pips than 100 pips. Now we do not want to use a larger stop because our win size is killed by doing so and we do not want to move our stop to break even because we will also get killed long term by doing that. So we know with 80% certainty that our entry will go to 10 pips giving us 1:1, at that point if we scale out half of our position we are effectively moving our stop loss to 5 pips (but in reality it stays at 10) and so on.

The idea behind doing it is that we are going to hold on to the 50% or 25% of initial position for a significant time, not just 1 or 2 extra pips - we're trying to capture the daily range or more. Imagine trading based on the weekly chart using 0.5% of your account at risk but with only a 10 pip initial stop. What's the weekly range?

Basically the general idea is hinged around you being extremely good, and I mean EXTREMELY good at scalp entries, it won't work if your initial win rate is poor, in fact you'll get slaughtered and then minimising your risk for the 'hold'. A hell of a lot of trades will get stopped out but it doesn't take many to take off to get the payoff.

Do I do this? At the moment no, but I know the theory and we can all but dream.

 

[SanMiguel]

Ive also noticed some pros scale out the trade really quickly. Recently I was reading phil newton's breakout strategy, and he scales out 2/3 of his position at 50% of the stop loss size. But I'm confused because I thought one of the golden rules of trading was to let winners run. By scaling out winners quickly doesn't that have a negative effect the risk/reward ratio?

Any help on this matter will be greatly appreciated

exactly, and what would they do with the 2nd 50%? Let it run.
You need to work out the average expectancy of each trade with scaling to get figures for your style.
Also, if you run this method on a SB platform and your initial scale is soon 10pips/4 ticks, etc. and move to break even, you will get sopped out a lot because of the spread and volatility so again...it depends.

 

[wellray]

It is about letting your winners run.
Say we want to attempt to hold our trade for 1 day. Now most of use would say to do that we're going to trade on the hourly or 4 hourly chart and have a stop size of what, going on average range on hourly, say 2 times that, 50 to 100 pips? To capture how many? So our R:R if we win end up being say 1:1-2:1. Not that impressive. We can then compound the error by moving our stop to break even or trailing our stop to obvious levels, constantly getting stopped out for our troubles.

Now consider this idea. We scalp the 5 min with 10 pip s/l for 1% risk. We make 1%. Then on our next trade we use the same position sizing but this time use our additional 1% and invest it back into our stop loss i.e. we now use the same position sizing but now have a 20 pip stop, with a 20 pip stop we should be able to hold for longer. Will this be an easier trade to profit from? If we lose we still only lose 1% of our capital. Trying it any other way will lead to constant whipsawing.

OK. Now scaling..with that in mind. Say we want to hold for a day but we're trying to enter on 5 minute, for argument sake using a 10 pip stop. Assuming we are good scalpers with a very high win rate, big assumption, but in theory it's easier to gain 10 pips than 100 pips. Now we do not want to use a larger stop because our win size is killed by doing so and we do not want to move our stop to break even because we will also get killed long term by doing that. So we know with 80% certainty that our entry will go to 10 pips giving us 1:1, at that point if we scale out half of our position we are effectively moving our stop loss to 5 pips (but in reality it stays at 10) and so on.

The idea behind doing it is that we are going to hold on to the 50% or 25% of initial position for a significant time, not just 1 or 2 extra pips - we're trying to capture the daily range or more. Imagine trading based on the weekly chart using 0.5% of your account at risk but with only a 10 pip initial stop. What's the weekly range?

Basically the general idea is hinged around you being extremely good, and I mean EXTREMELY good at scalp entries, it won't work if your initial win rate is poor, in fact you'll get slaughtered and then minimising your risk for the 'hold'. A hell of a lot of trades will get stopped out but it doesn't take many to take off to get the payoff.

Do I do this? At the moment no, but I know the theory and we can all but dream.

Good point, scaling should mean you get breakeven trades and you avoid trailing your stop and not taking the really valuable wins because you moved your stop to protect a few pips and prevent a loss.

 

[SanMiguel]

Good point, scaling should mean you get breakeven trades and you avoid trailing your stop and not taking the really valuable wins because you moved your stop to protect a few pips and prevent a loss.

The point of scaling is not to get break even trades, it is to take some profit along the way, reduce your risk a little, reduce your emotional connection to the trade, etc.