Scaling and Trimming

This is not financial advice. This is not personalized in any manner to any individual person's situation. The numbers presented are chosen at random and do not represent our products in any capacity. This is general information I'm providing in an educational capacity only, based on my personal experiences. Do not follow my ideas blindly, and always consult a financial advisor prior to making any financial decisions - including day trading. No staff member can or will answer questions relating to this.


An important note about scaling is that it is never "scale ad infinitum" for me. 

Rather scaling is something I only use when I feel I want to, for whatever reason, increase both my risk and potential return. It is not my default mindset. 

Instead I'm more focused on trimming. 

What is trimming and how do I do it?

Trimming is simply the act of taking my profits in an account and resetting the balance to my base minimum. This is my standard method of operation.

Upon reaching a predefined profit threshold I remove an amount from the account. In my case, I remove $35,000. 

For example, my trading account is $50,000 cash. When I reach $85,000 +/- I will trim $35,000 from the account. The remainder will be the reset balance and will simply continue to trade with the same amount of contracts. 

These are numbers that induce no emotional outbursts from me, and that I could comfortably see go to zero and not suffer some sort of coronary event. It is very important that I see my account in that manner, because I cannot trade emotionally. The amount I trade must be an amount I'm comfortable with throwing into a fire and walking away. 

Now, suppose I decide I want to generate this amount faster, or generate a larger amount. Assuming I am comfortable with the emotional side of it, then I would calculate my required drawdown for 1 additional base contract. 

We'll use a random number, and assume the required drawdown for one additional base contract (using the martingale formula in the last post) is $10,000. 

In this event I will allow the account to go all the way to it's $35,000 withdrawl point. I will, at this point, add in my new contract without withdrawing anything. 

At this point I will shift my numbers upward to account for the new drawdown required. My new base number becomes $60,000, and my new withdrawl number becomes $95,000.

I am starting from $85,000 in order to give myself time to ensure I'm emotionally okay with the change (rather than withdrawing $25,000 and starting from $60,000). This gives me the aspect of "playing with house money" even in a large drawdown with the new sizing. I am free of emotion at this point. 

This is how I approach scaling and trimming. For me, trimming is absolutely vital part of trading. 

Trimming the amount that I do (greater than 50% of my base value) means that after 2 trims I can have my account value drop to zero and I'm still playing with house money. 

This lack of emotional attachment is absolutely vital to my trading.