Evaluating Exit Strategies

frostengine · Mar 6, 2011

I am about to do an article series on my <a href="http://thestrategictrader.com/">blog</a> evaluating which exit strategies work and which do not work. I want to start an open dialog about the different strategies people normally use.

I think exit strategies can really be broken into three categories:

#1 Cutting Losses
- Stop Loss
- Trend Line Break
- Stop Below Support

#2 Protecting Profits
- Trailing Stops - Percent, Ticks, Chandelier
- Profit Target
- MA Cross

#3 Opposite Signal
- Exit when an opposite signal to your entry signal is generated

What are other exit strategies I can explore?

wrbtrader · Mar 6, 2011

Quote from frostengine:

I am about to do an article series on my <a href="http://thestrategictrader.com/">blog</a> evaluating which exit strategies work and which do not work. I want to start an open dialog about the different strategies people normally use.

I think exit strategies can really be broken into three categories:

#1 Cutting Losses
- Stop Loss
- Trend Line Break
- Stop Below Support

#2 Protecting Profits
- Trailing Stops - Percent, Ticks, Chandelier
- Profit Target
- MA Cross

#3 Opposite Signal
- Exit when an opposite signal to your entry signal is generated

What are other exit strategies I can explore?

That's a big research project because the categories you mention each can involve hundreds of variations and combos of strategies (indicators, price action or none technical). How's it possible for you to research so many strategies to determine which works and which does not work considering that's only part of the puzzle to profitable trading or losing trading ???

For example, a few years back there was someone that was researching different types of "profit target" strategies. He had a list of about 25 approaches and was asking for traders to list others...many coded and some discretionary (not able to code). Therefore, you're just looking for something that's automated, mechanical, discretionary, indicators, price action, none technical or all. ???

The point is that I don't think you're going to find out what works and what does not work considering trade strategies are a part of the puzzle to profitable trading or losing trading. However, you will find out what's available and that was the final conclusion of that guy that had +25 profit target strategies in research.

I'm guessing is that you're only looking at something that can be or has already been automated, mechanical or coded...that arguably eliminates most of the stuff discussed here at Elitetrader.com

Mark

dave4532 · Mar 7, 2011

Quote from frostengine:

I am about to do an article series on my <a href="http://thestrategictrader.com/">blog</a> evaluating which exit strategies work and which do not work.

When I visited your blog it seems to me like I was visiting a museum of some kind. The stuff you're looking at belong to the late 1980s. Pretty much worked to death in the last 20 years. Nobody in the right state of mind trades using stuff like that any more, I mean RSI and the likes. Your exits won't work if your entries don't work. Timing is everything. Trading = timing. Whoever doesn't understand this turns to a loser, sooner than later. No RSI, no MACD, oo indicator will give you timing. You will always be late and sweating to catch the HFT gamers while they strip you out of your cash.

If you want to save a lot of time and a lot of money you got to listen to me: if you understand a trading method it has very little chance to perform well. Try dealing with things you don't understand. Only then you will learn and escape form the mouth of the monster.

dwpeters · Mar 8, 2011

Regarding exits, in some cases they can depend on entries. For example, a mean reversion trade may exit on a return to the mean. A longer term strategy may simply rank various stocks or assets and hold those that are top ranked, exiting those that are no longer top ranked.

Quote from dave4532:

If you want to save a lot of time and a lot of money you got to listen to me: if you understand a trading method it has very little chance to perform well. Try dealing with things you don't understand. Only then you will learn and escape form the mouth of the monster.

Well I think most traders are dealing with things they don't understand, which is why they lose. For me I look at it the opposite way. I try to find the key things that matter most, and then use those in my trading strategies. ALL my successful trading strategies are based on simple concepts, and they work.

Weâve yet to have someone say, âHey, Iâve added some additional complexity to your strategy and itâs so much better now.ââ D. R. Barton Jr

ammo · Mar 8, 2011

Quote from frostengine:

I am about to do an article series on my <a href="http://thestrategictrader.com/">blog</a> evaluating which exit strategies work and which do not work. I want to start an open dialog about the different strategies people normally use.

I think exit strategies can really be broken into three categories:

#1 Cutting Losses
- Stop Loss
- Trend Line Break
- Stop Below Support

#2 Protecting Profits
- Trailing Stops - Percent, Ticks, Chandelier
- Profit Target
- MA Cross

#3 Opposite Signal
- Exit when an opposite signal to your entry signal is generated

What are other exit strategies I can explore?

all this stuff is talked to death here on et and by vendors trying to take newbs money, floor traders for over a century never used any of this,just trade what you see,if you want to write something,talk about the things to look at,what they mean ,how they correlate together or as opposites

intradaybill · Mar 9, 2011

Use the exit technique that works for the particular system mechanics. Swing systems use different exists than trend following systems, for example.

MGJ · Mar 9, 2011

There's a good one at the bottom of page 127, in the book "Way of the Turtle"

http://bit.ly/hSVhUg

efficiency · Mar 16, 2011

Chandelier stop (HHV- 3 ATR) works pretty good.

Mental stop not a hard stop. When you get an alert, it becomes descretionary.

Exits are where the money's made (or losses stemmed). In contrast to entries, exits are taxable events.

inefficient · Mar 16, 2011

Quote from efficiency:

In contrast to entries, exits are taxable events.

In the US, futures traders are issued a tax form called 1099-B. This form lists trading income for the year and it is marked-to-market on Dec 31. You pay taxes on Open Trade Equity, i.e. on profits of still-open positions. Before the exit. The end of the year (12/31) is a taxable event.

frostengine · Mar 25, 2011

Quote from efficiency:

Chandelier stop (HHV- 3 ATR) works pretty good.

Mental stop not a hard stop. When you get an alert, it becomes descretionary.

Exits are where the money's made (or losses stemmed). In contrast to entries, exits are taxable events.

I just finished testing and publishing the results on the Chandelier exit. It performed decently. Its not a bad exit, but does not reach the goals I am after.