Partial Exits

[ajellis]

Would it be possible to add functionality to the pyramiding capabilities in reverse in order to allow for partial exits?

Partial exits are used to grab some of the profit along the way. Contrary to the cliche "cut your losses and let your profits run" it has been proven that done correctly, partial exits at a profit are a good compromise between allowing for the trend that goes all the way to the moon, and getting something from the many small trends that get going and then falter and collapse. The result is preservation of capital in weaker markets, rather than steady erosion of capital, and a corresponding flatter equity curve.

Could this functionality be added to the Tradesim DLL?

[sectorbets]

Not to quibble, but scaling into and out of positions has never been shown to improve returns. It is used by very large investors so as to not disturb the market too much while building/unwinding positions--a good rule of thumb is that they rarely trade more than 10% of the average daily volume in any single stock, so scaling in and out is critical with smaller cap stocks, but except for liquidity issues, you are stacking the deck against you by scaling in and out in all but the most extreme conditions.

[David Samborsky]

"Partial exits are used to grab some of the profit along the way."

Then it's not really a trade pyramid in the true sense of the word. :wink:

In version 4 to be released we have fixed a problem where in some cases pyramid trades which prematurely terminated due to a breach of stop etc would be ignored because they did not terminate at the pyramid exit date.

[Dirk DC]

This practice does get applied to large positions (i.e. pyramid trades) but for a different reason than partial profit taking (which is simply bad practice).
When holding large positions in a single market or multiple positions in many markets, one always aims at keeping the exposure constant. This pre-set value differs for every trader as it depends on many things. Volatility based trailing stops can increase exposure of large positions dramatically during periods of increased volatility. To bring the exposure back under control, it is tempting to bring the stop closer to the price action. This is however bad practice as it changes the (positive) expectation of a trading system. When trading only one market or holding positions in only one market, the correct way of bringing the exposure level under control again is by a partial reduction of the position size. When trading several markets at anyone time, overall portfolio exposure can be controlled by closing positions in other markets.
cheers,
Dirk DC