Automated Exits

F

frostengine

When developing an automated strategy, what I find the most challenging is exits. Exiting when an oscillator becomes oversold seems to work occasionally. Generally providing a small boost. However, it misses the big runs and doe s nothing for getting out a losing trades.

What are some "exit" strategies you find helpful when automating a strategy?
 
An OTR range-based rule, and reconcile yourself to the notion that you are leaving money on the table as a compromise to the positives associated with an automated system.
 
Quote from frostengine:

What do you mean by an OTR range-based rule?
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It has to do with Over the Road trucking, probably some bleedover lingo from the CB to the trading world...

Probably he was saying ATR, it makes sense in the context of automation. My experience is that the best trades don't set the pace for the rest of them. The worst trades have to set the pace moreso so systems wind up not capturing a lot of a move but they are then consistent and happy making on a daily basis... if you use a 3d image of an optimization map you can see that you don't want to optimize for the absolute peak of the high points, you want to be further down the hill to avoid overoptimization... ATR is a practical representation of volatility that is up to date if your averaging period is short so it's a good gauge of what you might expect from a price move...
 
Quote from frostengine:

What are some "exit" strategies you find helpful when automating a strategy?
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Just curious if you tried multiple exits in your strategy. So combine 2-3 different types of exits. fixed profit target,time based, trailing stops. along with over the road trucking exits.
 
Ever thought about re-entering a trade after a stop-out?

There are plenty of logical reasons to re-enter. Which works best, is up to you to find out. A lot of things will work, but which is most consistent may be what you are looking for.

Unfortunately as soon as you apply real money to the situation, the method that you chose will stop working, then you will likely switch and the original will start working.

That's trading ... when it comes to automation, consistency is the KEY!
 
Quote from bearmountain:

Just curious if you tried multiple exits in your strategy. So combine 2-3 different types of exits. fixed profit target,time based, trailing stops. along with over the road trucking exits.
More...

you could use all three. i.e. fixed target of 4 atr (or absolute amount based on technicals like S/R), time based like 5 days for swing trade, trailing (last swing high/low or 5 period ma).

+1 to another poster's comment that things change when you put $ on the line. your stop strategy will not be perfect - none is. the stop's primary purpose is to manage risk FIRST and to lock in profit second. your stop strategy should be based on research so that it's optimal based on a large number of trades (i.e. ok i took 1000 trades and it's optimal so exit half at my primary target and trail a stop for the other half even though sometimes i'm leaving $ on the table by not holding the whole thing). there are always tradeoffs - it's our job as traders to manage them for our strategy and personality. remember it doesn't matter what's the best strategy if you personally can't handle it b/c then you'll just throw it away and go by the seat of your pants (speaking from experience).
 
Exits are hard to determine, but I do believe there are good/appropiate exits for each of the different types of strategies.

One strategy i had, after testing many different exit types, the best fit was dollar trailing.

For another, no exit method worked. the best which i found by accident, was to let the trade run all day and just close it out end of day.(ofcourse use a emergency stop). The difference in results was quite dramatic.

Time based stops which I learned from Price action lab. I find very prone to curve fitting and optimization.
 
Quote from bearmountain:


One strategy i had, after testing many different exit types, the best fit was dollar trailing.
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This may be because if you are trading the same number of shares, you are always risking the same $ amount per trade. If your dollar trailing was larger than a move in a typical day or for a few days in a swing trade, the stop wouldn't be reached because the stock won't move that far intra-day or within the number of days.


For another, no exit method worked. the best which i found by accident, was to let the trade run all day and just close it out end of day.(ofcourse use a emergency stop). The difference in results was quite dramatic.
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The only problem with this is ... as soon as you apply this stop, the market reverses and you realize that you 'could' have had a good day and you let a winner turn into a loser. You turn your back on it and it works after that.

It would be hard, but the evidence of just how often this would benefit a trader may change an intra-day traders mind that maybe they should hold out a little longer (have a little more patience). A lot of day-traders would really be surprised at what percentage of daily breakouts hold (close above the previous high).
 
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