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Tim Morge wrote:
>On my forum [http://www.marketgeometry.com], the question was
>asked if scaling out of positions makes more money than setting a
>fixed target and exiting all of a position at the maximum target
>[assuming price gets to the maximum target].
For what it's worth, Van Tharp has this to say:
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. ... Short-term traders use
this type of strategy frequently. 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 sort of 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. ... You
are also making sure that you only have a minimal-sized position
when you make your largest gains.... It's the perfect method for
people with a strong bias to be right, but it doesn't optimize
profits or even guarantee profits. ...
...Work out the numbers. Imagine that you only take either 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 on to a full position.
(p.265 of Trade Your Way To Financial Freedom - in spite of the
hyped-up-sounding title, it's an excellent book on bet sizing.)
-Alex
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