I agree with ej420. That's one of the reasons why I use time exits - they keep my strategy simple, and testing shows they work better. On top of it, being a beginner at programming, I wouldn't even have the skills to automate a stoploss. But what's important is using time exits not in the sense of "exit an hour after entry", but rather taking advantage of patterns in price related to the exact time of the day.
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Time Based Exits - the ideal exit strategy?
- Thread starter 4XQs
- Start date
Walk forward testing is extremely important IMO.
That statement about stops is sometimes true, sometimes false depending on the style of trading and the percent of your overall account allocated to each trade. If you have a long term system trading stocks and you only allocate 2% of your account to each trade the most you can lose on one trade is 2%. And if you have 50 trades on and there's some catastrophic event stops could hurt you more than help you. On a system like this time stops could be used as one of the exit conditions BTW.
You're right about the slippage... I'd even say it's good to jack it up over and above what's realistic to filter out marginally profitable stuff and allow some room.
You don't need to know much about statistics if you stick to simple concepts like graphing metric curves for time exits. And it's probably better to stay away from using statistics for market stuff because there are a lot of pitfalls and most people know only enough to shoot themselves in the foot. William Eckhardt's written some worthwhile articles /given interviews on this.
That statement about stops is sometimes true, sometimes false depending on the style of trading and the percent of your overall account allocated to each trade. If you have a long term system trading stocks and you only allocate 2% of your account to each trade the most you can lose on one trade is 2%. And if you have 50 trades on and there's some catastrophic event stops could hurt you more than help you. On a system like this time stops could be used as one of the exit conditions BTW.
You're right about the slippage... I'd even say it's good to jack it up over and above what's realistic to filter out marginally profitable stuff and allow some room.
You don't need to know much about statistics if you stick to simple concepts like graphing metric curves for time exits. And it's probably better to stay away from using statistics for market stuff because there are a lot of pitfalls and most people know only enough to shoot themselves in the foot. William Eckhardt's written some worthwhile articles /given interviews on this.
Quote from 4XQs:
But there's so many factors to consider that I'm finding it very hard to be confident that a system works - even with walk forward testing...
Someone posted that you need the stoploss or your account will blow up...
I've also found that realistic slippage is super important, and can kill the most promising of systems - forcing you to higher timeframes.
You can probably tell from my posts that I don't have a math/stat background (unfortunately).
Testing exits after n bars, as you referenced earlier, is a great way to learn the quality of your entry setup. It's a nice, independent measure that can help tell you if you have any edge in your entry.
Using time-based exits as part of trading, on the other hand, is most likely disastrous. It is EXTREMELY prone to curve-fitting. If it's not logical, and it's not, it's usually curve-fitting. I've never seen a time-based such that you exit no matter what after n bars that would be effective in the future.
Using time-based exits as part of trading, on the other hand, is most likely disastrous. It is EXTREMELY prone to curve-fitting. If it's not logical, and it's not, it's usually curve-fitting. I've never seen a time-based such that you exit no matter what after n bars that would be effective in the future.
I should add that lots of things that LOOK better in testing are actually MUCH WORSE in real trading. If you're not properly testing your systems, you'll learn this the hard way. If you're testing out-of-sample and walking forward, and you still think time-based exits are best, more power to you! Give it a shot.
The most important part of trading is having probablility on your side and time based exits are fine if you have a high probability entry, they may not be perfect exits but if they tend to win after high probability entry , whats the problem , they're also advocated in part by Toby Crabel's book, who I believe went on to become a succsessfull fund manager , what's more they are a simple and honest way of looking at mkts , i.e. if xyz happens does the next bar win or lose?
Quote from 4XQs:
Even though I've traded for what feels like eons, I've spent some free time the last couple of months putting together automated strategies in MultiCharts, and it's great fun. Whilst experimenting with various types of exits I've been thinking...
There are many reasons for trading with a stop loss; keeping losses small can be one of them, avoiding a catastrophical loss can be another. The latter I'd say would be related to the amount of leverage applied to your position (or insanity like being long C last fall, even unleveraged). Ultimately, it depends on the system of course - what kind of movements you're trying to capture.
But if you can stand the swings, I find time based exits without a stoploss to be the ultimate exit strategy - with a few assumptions, of course. So, let's say you're trading a portfolio of 10 uncorrelated systems with no (or very controlled) leverage, why wouldn't you move the catastrophic loss far, far away where it (hopefully) will never get triggered - and rely on a time based exit?
I hope someone can provide some interesting talking points on the subject, keep in mind I'm a system developing newbie - although I've owned the Ralph Vince books for 10 years.
I have found the exact same thing. My trading didn't really take off until I started to use time stops. The bad part is that sometimes you have to sit through some major hits until your time stop triggers. That is what I have found to be the hardest part. Sitting through a trade going against you in a big way and having the courage to stick with it. Sometimes it comes back and sometimes it doesn't.
For example, I was long the S&P 500 futures on 1/18/2008 and it gapped down the next morning giving me a huge loss at the open. I stuck with it and it turned into a small loss instead of a huge one. I gladly took it.
Time based exits are good imo. You have to prove the case for using a stop loss, for example if you buy a stock and have a stop loss to sell it when it goes down 5% you have test that as a system in its own, sell a stock when it goes down 5% after your signal, if trading that in itself isn't profitable then your stop loss isn't worthwhile. If you only risk a small portion of your a/c on each trade with a time-based exit your risk is already mitigated.