matrix

As I was browsing through some elitetrader posts, I noticed how some “traders” keep asking whether scaling in and out of positions is an inferior strategy.

I assume strongly that these people are not consistently profitable in their trading. To become a real trader, one that actually makes money regularly, I believe you have to have had a moment similar to Neo’s awakening at the end of “The Matrix”, the moment when he finally saw the illusion around him for what it was.

To become consistently profitable you have to fully internalize that your trading results are magically linked to your trading personality. The motto clearly is “Know thyself”. Know what position size you are comfortable with. And what time frame you want to trade (intraday, days, weeks, years). And what strategies and products you want to specialize in (stocks, futures, options, etc.)

Learning all of this takes a long time. But if you do not fully understand your own personality, you risk losing everything you ever made once the markets change and turn against you.  And they always, always will.

What does this mean for scaling? It means that you should not bother with trying to figure out what is mathematically or theoretically superior or inferior. It all depends on what works for you. If you feel better taking small profits along the way, then do it. To me it is impossible to answer whether this is mathematically inferior or not. Answering that would require perfect foresight, and if  you had that for even one day alone you could turn yourself into a millionaire overnight.

Just know that as soon as you start getting nervous about a position or your trading style, do something: scale back your size, or hedge it at least partially. The trick is to always stay in the zone.

Know thyself.