Since my exits are so bad anyways, I've been toying with a forced partial exit on a certain % gain on equity. It's kinda arbitrary given that I often vary position size, but I'm figuring that it will even out, and here's my reasoning: If say my position is a relatively small one but it's managed to hit that target %, then the move is either an extraordinarily fast one, or one that I've held for a relatively long period and is due to be exited; if the position happens to be larger than avg, then I should hit that specified % rather quickly and should exit partially anyways on account that the leverage on the trade is probably higher than is comfortable for holding for the longer term. Does this make any sense at all?
Great entries, horrible exits
- Thread starter illiquid
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Since my exits are so bad anyways, I've been toying with a forced partial exit on a certain % gain on equity. It's kinda arbitrary given that I often vary position size, but I'm figuring that it will even out, and here's my reasoning: If say my position is a relatively small one but it's managed to hit that target %, then the move is either an extraordinarily fast one, or one that I've held for a relatively long period and is due to be exited; if the position happens to be larger than avg, then I should hit that specified % rather quickly and should exit partially anyways on account that the leverage on the trade is probably higher than is comfortable for holding for the longer term. Does this make any sense at all?
I think that is probably the source of the problem, my entries are discretionary and the factors that get me in vary from trade to trade; things would be much easier if the mirror-image factors always appeared to announce when I should exit, but that happens very rarely (and would be the few times where I'd flip the position on exit). I'm very selective with my entries and thereby miss alot of big moves in the markets I watch, so it makes sense that most of the time I won't be able to gauge when the turn will occur in the moves that I have a position in. It might just have to be something I need to learn to live with.
I asked that question to you because I ask that question to myself before entering any trade. It allows me to immediately identify and plan a reaction to any possible future behaviour before I enter. I know before hand what it takes, price-wise to either prove my entry right or wrong.
Having this plan of action allows me to place all my focus on the price movement and constantly register new inflection points/retracement levels, if they have breached a condition for exit.
This is essentially like treating every newly made price point as new reference point and hence a new piece of information to help evaluate a future course of action.
This may or may not work for you, but, I believe that leaving exits to a % gain is too simplistic and does not make you apply the same analysis skills as you would when considering an entry. The two should types of analysis should be fairly similar IMO.
Having this plan of action allows me to place all my focus on the price movement and constantly register new inflection points/retracement levels, if they have breached a condition for exit.
This is essentially like treating every newly made price point as new reference point and hence a new piece of information to help evaluate a future course of action.
This may or may not work for you, but, I believe that leaving exits to a % gain is too simplistic and does not make you apply the same analysis skills as you would when considering an entry. The two should types of analysis should be fairly similar IMO.
I agree it's all mostly pain caused in retrospect, I'm not trying to make perfect trades but just trying to figure out why my exits are so poor in comparison with my entries. I think I figured out something just writing one of my replies earlier so at least it's starting to make sense to me why I'm in this situation.
As for the second part, I know system traders play the percentages, and are free from torturing themselves within their setups that they have already fully accepted without attachment to individual results, but I started with that approach and now I'm on the opposite end of the spectrum and probably won't ever be able to think of the movement in between entry and exit as "random noise" (I know you don't mean it literally, but I always feel exactly the opposite about every discrectionary trade I make). I think maybe along these lines, I just haven't fully accepted the transition into discretionary trading yet, there is a part of me that wants to go back to being able to "let go" once the setup, entry, and stop are in place, but I don't know if that's possible in the kinds of trades I do now, at least it contradicts the principles by which I enter a trade and that part at least seems to be working. I'm probably holding on to some ideal of consistency which should have gone out the window once I decided to change the way I trade, sorry if this turns out to be just a bunch of whining.
This makes sense, the hard part is what to do when exit signs don't all line up (the vast majority of the time) in the same way as my entries. On my entries I can afford to wait for near-perfection, but I can't expect the exits to be as clear cut in both analysis and perception -- I wasn't very cognizant of this fact before today.
I also admit there's some laziness or fear of effort on my part in being more proactive in deciding when a trade is starting to go sour as well, simply because I am "invested" in my opinion. Definitely one of my weaknesses but I think generally an occupational hazard in discretionary trading that I need to constantly pay attention to.
I can't really advise you because I approach things differently. But for me understanding my own weaknesses and devising an exit strategy that works off from my strengths has helped me. Also, through repetition you can train yourself to react differently. My primary function as a trader is to manage my open positions. IMO entries and exits require totally different mindsets. If your primary function is trade entry maybe you should put something else (a systematic approach) in charge of trade exit to take some of the pressure off?
Yes, I too think more clearly when I see my own responses to threads.
Yes, I also agree that it is much easier for system traders to be more at peace with themselves on this than discretionary traders...
Well, I do mean it, but perhaps I am not being clear. What I mean is something akin to a Feynman Path Integral. That is, once you enter a trade, you cannot tell what path the price of what you are trading will take. For example, it may hit your stop first and then go to your profit target (unlucky,) or, it may go straight to your profit target like a bullet, or anywhere in between. The point is, while what you consider to be a good entry may have an edge (a pocket of predictability,) how the market gets to where you want to go is completely up to it and you have to resign yourself to the actual path and the time it takes to do so. Essentially, the path is infinite dimensional, or said another way, the path is random. It can at the same time mean that one direction is more likely than another - the key to the randomness component is how long it takes to get to a given target, since information probably diffuses according to the square root of time, or more complexly, some Chaotic function/attractor that may be transient. Even in this case, markets can change abruptly because they are not stationary as a result of new information arriving nudging attractors around or shifting the regime entirely. That is why once the trade is put on, all you can do is "manage" the position (as a discretionary trader.)
FWIW, I have gone back and forth between discretionary trading and systematic several times, and believed that one was better than the other depending on whether my systems were getting killed and I had had enough. I now believe that it is possible to trade both ways at the same time and that is my current approach. But most of us are better suited to one way or the other on a given instrument. For example, I love discretion in equities because I believe that tape reading is useful here, but abhor it in SIFs. So during the day my computers are working hard and I am too, while out of the corner of my eye I see what they are doing and what it's positions is/are (I sometimes will even express my opinion out loud at my system on the given trade.
) The experience of going back and forth is not wasted though IMO, for each experience strengthens the other.If possible, automating what you do by discretion is ideal. If not, then I suspect that assuming you have a great deal of discipline and perseverance, that if you give yourself enough time to gain the experience necessary, it will likely come to you one day and it will just click in your mind.
I have responded to this thread and these posts in length because I see myself in them. I think that most traders that have the luxury (skill) of being able to trade both systematically and discretionary have gone through a similar boot camp.I'm probably holding on to some ideal of consistency which should have gone out the window once I decided to change the way I trade, sorry if this turns out to be just a bunch of whining.
nitro
I think the same thing can be said for the currency and bond markets, alot of confusing cross-currents and whipsaw moves. As per this thread, by the time I decide to reign in my targets and just try for base hits is most likely when the bigger trend re-asserts itself again, which makes sense.
"Managing" is definitely my weak point when it comes to my discretionary positions, to the point where I'm starting to want to fade my own instincts when it comes to deciding when and where to lock in. There's a definite hindrance in reaction time for me when having a committment to a position or trade idea, that just isn't there when I'm intraday scalping or trading a pre-determined setup.
A systematic exit approach is what I've settled for so far, but because I don't have too much faith in systemizing entries I consider this a compromise until I can develop the right mindset for closing my trades.