Exit methods for trend-traders

Quote from Cutten:

Can you explain a bit more how you calculate and use a parabolic stop?
More...

I'm not sure how parabolic is calculated. It's supposed to be some complex formula which makes it a trading system of its own... I use it for trailing stop. When I was researchin last year I read a few posts about swing traders using parabolic stops. Out of curiosity I started to play with it. I'm more visual, and visually this was doing what I wanted to do.

I can't explain how it works, but I'll attach a chart showing how it looks like. These were trades from last week... one strike shows entry, and two strike shows exits. The red dots are parabolic stop, and that's where my profits are taken.
 
The simplest methods to think about, are the ones that always have a position (either long or short). They go by the name "reversal systems" because every trade reverses their position: from long to short, or from short to long.

In these cases, the exit method and the entry method are one and the same. The reason you exit an existing Short position is: because you are reversing to Long! (and vice versa)

The most well known examples of reversal systems are the One Parameter Channel Breakout system and the Moving Average Crossover system. Both of them are incredibly simple and both of them are robust and profitable.

ONE PARAMETER CHANNEL BREAKOUT SYSTEM:
Reverse to Long if today's high is > than the higest high of the last 20 days
Reverse to Short if today's low is < than the lowest low of the last 20 days

MOVING AVERAGE CROSSOVER SYSTEM:
Reverse to Long if the 10 day moving average is > than the 50 day moving average
Reverse to Short if the 10 day moving average is < than the 50 day moving average

An equity curve for one of these reversal systems is shown in

<http://www.turtletradingsoftware.com/forum/viewtopic.php?t=2170&highlight=>
 
Quote from Markus:

Basically there are only four exit rules:
  • A fixed dollar amount (e.g. $1,000)
  • A percentage of the current price (e.g. 1% of the entry price)
  • A percentage of the volatility (e.g. 50% of the average daily movement) or
  • A time stop (e.g. exit after 3 days)

Markus
More...

Trailing a stop behind S/R that the trend has made along its way is very valid too.

By doing this you are trailing based on the what the market is telling you.
 
Quote from Markus:

Basically there are only four exit rules:
  • A fixed dollar amount (e.g. $1,000)
  • A percentage of the current price (e.g. 1% of the entry price)
  • A percentage of the volatility (e.g. 50% of the average daily movement) or
  • A time stop (e.g. exit after 3 days)
Markus
More...

I find for swing trades that trailing with the previous days low keeps you out of trouble.
 
Quote from Neodude:

Parabolic trailing stop explained:

http://www.transitionstrading.com/Parabolic.htm

Very nice and logical idea.


-Neo
More...

Parabolic stop works well most of the time. Problem I find that it doesn't know when I enter a trade. I trade from 1hr chart, and in most cases I don't start trailing until several hours have passed. This is exactly what I want. I want to give price time and space for it to mature. Thing is sometimes it doesn't do this. Hence, parabolic doesn't know when I enter.

This is an attachment of what occured this week. I had my entry, but right after I had my entry I already started trailing instead of giving it time and space as I'd like. Only drawback that I find using it. Of course, there is nothing perfect. This type of thing doesn't occur very often. Another drawback is that most of my trailing is done during asian market hours, during my sleeping hours. Which means I wake up every hour to trail my stop.

I'm working on a new method, and I'm gonna try something new for exits. One method I am considering, which I have used when I used to demotrade back in the day....

once prices reach 20+ unrealized, stop at breakeven. 50+ stop at 20. 75+ stop at 50. 100+ stop at 90... Very simple idea, yet overlooked I think. Simplicity often rocks. Now my exit strategy knows exactly when I enter a trade, and I get to trail accordingly. Another advantage for me is that it'll give me some peace of mind. I can set my alerts, and sleep peacefully.

<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=718765>
 

Attachments

Quote from Boib:

I find for swing trades that trailing with the previous days low keeps you out of trouble.
More...

Simple idea, but sounds like it would work. Although I would probably just use a higher timeframe. A problem I think may happen is that it leaves too much money on the table. Once I get 200+ ticks in favor I don't like giving up much. Something worth looking into though. Maybe the advantages of it outweights the negative :)
 
Quote from mogul:

one simple rule I have found works well to get out of medium length swings is the 3 bar break.
More...

I don't know what this is... could you care to explain?
 
You must log in or register to reply here.
Back
Top