Honestly I don't remember all the details, as I did the testing several years ago and the part that stuck with me was the importance of getting as much as possible out of the full position. I am pretty sure that I used the following: a large initial stop that would not get hit much, which would be pulled to break even at maybe 1x initial risk, an exit strategy that tried to hold until the close unless i got a severe breakdown from a swing high (or low if short). I don't think the individual parameters matter that much, except that you want a stop large enough that it rarely gets hit. This is a very stressful trading style, as you put on a trade and hang in there as long as possible. It probably won't work too well in a choppy, rangebound market, but you use entry conditions to try and avoid those markets. It definitely did not trade every day.
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Profit Taking Strategy
- Thread starter JT47319
- Start date
Honestly I don't remember all the details, as I did the testing several years ago and the part that stuck with me was the importance of getting as much as possible out of the full position. I am pretty sure that I used the following: a large initial stop that would not get hit much, which would be pulled to break even at maybe 1x initial risk, an exit strategy that tried to hold until the close unless i got a severe breakdown from a swing high (or low if short). I don't think the individual parameters matter that much, except that you want a stop large enough that it rarely gets hit. This is a very stressful trading style, as you put on a trade and hang in there as long as possible. It probably won't work too well in a choppy, rangebound market, but you use entry conditions to try and avoid those markets. It definitely did not trade every day.
Quote from nitro:
IMHO, entry is KING.
nitro
I guess everyone will disagree with us, but I tend to agree. Unless you are trading with enormous stops or position trading, a bad entry dooms you. A good entry gives you a lot of chances to get something out of the trade. Most people here seem to want to trade with tight stops on short time frames in the misguided belief they are limitng their risk, but if you want to do that your entries have to be spot on.
Quote from Moa:
... .
What I can say, is than by backtesting my strategy (statistical), stops ALWAYS bring to worse overall results and that is less comfortable but better to let run large loses... and large gains.
This makes sense intuitively, assuming stategy is globally positive and stops are hit randomely, because you stop more gaining trades than loosing ones.
Excuse my poor English... ;-)
I have found the same thing. It's not what you will read from many of the gurus, but stops typically degrade a system's performance. One way to demonstrate it is to run your system with no stops, just exit MOC if you have negative open trade equity. If your system is decent, you will probably do better than using stops. Now you have to use stops in real life to protect against disaster, but they shouldn't be getting hit on every other trade.
Perhaps one of the problems is that when backtesting profit taking strategies, the usual method is to use a fixed # of points or fixed % targets and there's no recognition in a backtest for when prices are running.
Which flies in the face of basic profit taking ideas that if prices are running, you delay your profit taking until prices stall and that you target your profit taking at support/resistance targets (because in choppier markets that's where you'll expect prices to probably reverse) not just arbitrary # of points/%.
Which flies in the face of basic profit taking ideas that if prices are running, you delay your profit taking until prices stall and that you target your profit taking at support/resistance targets (because in choppier markets that's where you'll expect prices to probably reverse) not just arbitrary # of points/%.
Quote from AAAintheBeltway:
alfonso,
Very good explanation and approach and I pretty much agree with everything you say. I've never been a big fan of trailing stops because you are always exiting on a pullback. I'm not a big fan of targets either because you never know how far a move might go. And I really hate giving back a lot of open profits. So you have to find some compromise in that.
I think there are three basic rules that help. One, once you've cleared your entry price, never let it go to a loss. Two, try to exit on a pattern failure or reversal or exhaustion signal. Three, if you miss two, then use something similar to a parabolic trail to ensure against giving too much back.
If you determine the pace of the trend, then by making C&R's on your stop if drives into the price if the price fails to follow the trend.
I continue toi log potential stops and I periodically C&R. I notice that if i cannot make entries in my log, then something is coming up soon.
I agree with you on targeting. although resitance and/or supprt are there for long or short trends respectively, sooner or later there are breakouts on these too.
Being a swing trader, I like to scale out of my positions. I divide my position in three and take 1/3 along the way. However these profit points are strictly based on mkt action and not on any set pre-determined profit target.
A big part of my reason for doing this is that it helps me psychology, I am better able to handle my strategies when I know that I have bagged some profits. What I have learned from years of experience is that putting together successful systems is one thing, but having the disciple of trade them is quite another. I find scaling out of positions in a somewhat discretionary manner helps me discharge some of my creativity.
A big part of my reason for doing this is that it helps me psychology, I am better able to handle my strategies when I know that I have bagged some profits. What I have learned from years of experience is that putting together successful systems is one thing, but having the disciple of trade them is quite another. I find scaling out of positions in a somewhat discretionary manner helps me discharge some of my creativity.