Best Exit method for system traders?

A

achilles28

In the middle of back-testing strategies that collected dust for awhile. The setups are mainly price action-based. While the entry logic is quantifiable, the exit logic, at least when I traded them, was fuzzy. If the trade went in my direction, I would hold it for awhile, and then get out at a perceived turning point.

My problem now; coding that 'feeling' is obviously impossible (beyond my neophyte capabilities), and the entry rules flipped upside down produce too much churn. While some of the strategies remain profitable with opposing entry/exit logic, position hold time is very short, and trades are exited way before the trade has a chance to mature and run.

One key is allowing the market it's natural freedom of movement, during the run. As the market zig-zags up, and zig-zags down, the exit strategy has to accommodate this natural wave-like movement of price, without getting triggered.

So what are the best options to allow profitable trades to run? In no particular order, I'm thinking:

- profit targets
- trailing stops
- trailing stops after x profit target
- trendline break
- MA break
- candle setups (hanging man/doji etc).

Any insight would be appreciated.
 
Last edited:
It depends for me on what timeframe I took the trade, long term I use weekly charts, so whether stocks or futures, I back tested to know where I should take profit on half position and rest just stay with breakeven stop plus a very small amount. I like stocks that seem to have highs/lows over the course of fifty years, don't want to enter too close to tops. All my back testing shown that trailing stops took me out of good trades and often these areas are where I am getting another signal to add. I like using MACD divergence that is slow indicator so when I get divergence on weekly charts, I wait till fifteen minutes on last day of trading week and if price below last weeks low, I get out. Go long in dividend paying stocks and going short in non-dividend paying. Also stocks that are optionable of selling Puts in strong uptrend. Just little tricks to make a bit more but adds up.
 
any exit strategies has it own pros and cons. but when we talk about an exit strategies, a total target profit should define at first.
we dont intend to trade few, it's a long run. when trade we actually develop a cumulative exit strategies. my current exit strategie is trailing stops after x profit target.
 
achilles28 said:
In the middle of back-testing strategies that collected dust for awhile. The setups are mainly price action-based. While the entry logic is quantifiable, the exit logic, at least when I traded them, was fuzzy. If the trade went in my direction, I would hold it for awhile, and then get out at a perceived turning point.

My problem now; coding that 'feeling' is obviously impossible (beyond my neophyte capabilities), and the entry rules flipped upside down produce too much churn. While some of the strategies remain profitable with opposing entry/exit logic, position hold time is very short, and trades are exited way before the trade has a chance to mature and run.

One key is allowing the market it's natural freedom of movement, during the run. As the market zig-zags up, and zig-zags down, the exit strategy has to accommodate this natural wave-like movement of price, without getting triggered.

So what are the best options to allow profitable trades to run? In no particular order, I'm thinking:

- profit targets
- trailing stops
- trailing stops after x profit target
- trendline break
- MA break
- candle setups (hanging man/doji etc).

Any insight would be appreciated.
More...


what time frame do you trade? What instruments?
If you are a swing trader- Looking for longer holds and larger gains over a period of weeks & months-
Dave landry has a good instructional book out there on " swing trading for the layman."
One of the major concepts of the book Allow the remainder of the trade to run- with a stop that protects your entry- Some trades will come back and hit that stop- Other trades may NEVER come back and hit that stop-
Eventually, you follow the remaining trade with progressively wider stops as your profit increases- You could consider handing this now winning portion of the trade to a longer time frame chart to follow it- For example- if you enter on a daily chart, eventually hand off the trade to a weekly chart as your profit % allows you to withstand the wider volatility swings as "Normal ATR"-
My opinion - and personal goal- is to develop those longer term- greater gains on each trade- or - if the market is getting choppy- trade within the swings of the chop if wide enough. One never knows when a minor pause is the start of a larger pullback. The longer term trend gain often exceeds the short term trade by a factor of 5x- or more- gains though- and with reduced commissions. This occurs because the trader fails to reenter near the lows- the trend reaction was fast, $$$ have not cleared to reenter etc. Psychological holds against going when price seems extended already etc. Trend trading tries to optimise the high-low swings that price makes during a longer term trend- To gain the advantage of greater gain by taking an active role is all about timing properly. Sometimes you are right, sometimes you will be wrong..........Too tight a stop- and you get whipsawed- trade continues without you.


Which brings me to the most important subject that you failed to mention- The simple concept of Position Sizing- A basic technique that will help assist in ensuring your longevity through the learning curve-
Nutshell version is that you are going to Risk too much with your trading expecting to be a success without paying your dues to the market- So your bet will be too big- too many times, you won't get why your method is failing you, and you will get nailed in a relatively short period of time- You will blame your method or the market- Instead, realize it's about GREED and Hubris-
Try this on for size- Consider that you will apprentice to the market for a year or so-
Apply a methodical Position Sizing concept for each one of your trades-
The concept is to ensure that as you lose- or win- in the market- you use a methodological approach to the RISK of the trade- UNDERSTAND and Apply this Concept- You will not get Rich- but you will be here in 1 year...... This is more important than any technical technique you learn- IMHO.....
Let's use a 10%- max position- with a 1% position RISK for the 1st 6 months of live trading.
This will give you a statistical basis for your approach- Should your account value decline- the amount you can Risk also declines . If your approach succeeds, your account value increases, you can Risk more-
Eventually, you have established a win-loss ratio - and you can evaluate your system in real trades- and make adjustments .......

All of the other questions are tactical - and will change as the market conditions/time frame change
As you backtest and review possible trades- ask yourself if the trade 'signal' you are reviewing has any relevance to what has occurred in the past year or two? It is very easy to get wrapped up in the immediate here and Now- without realizing that the here and now is simply a minor hiccup in the larger trend.

As to the rest of your questions- All are subjective - There are no definitive absolute parameters that you can plug in to make a workable system in real time - across the markets- Things change and evolve-
Take with trend trades and make the best entries is the best starting point I can suggest JMHO-SD
 
All those can be profitable;
moving averages/ {plenty of study, ALL data} are amoung the best.Wisdom is profitable to direct
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
 
Arnie said:
I would also look at MAE

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=maximum adverse excursion
More...
follow your link, and got some information may useful :
Although a system may seem viable on the surface, a particularly large MAE might reveal that actually it would not work in practice because the MAE would be too large for the proposed account size, perhaps eliciting a margin call that would render the backtest results inaccurate and misleading.
The MAE is also useful in setting stop losses. If a trader knows the MAE for most of their winning trades, then they can use that knowledge to arrive at a system with a favourable risk:reward ratio. For example, if a trader finds that most of their winning trades do not go against them by more than 30 points, they can then use that knowledge to cut their losses when they are more than 30 points.
seem still have to reconsider the RR %, just like any other exit strategies.
would you share any further detail about MAE, thank's
 
You must log in or register to reply here.
Back
Top