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Entry and Exit Decisions
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Entry and Exit Decisions

  #1 (permalink)
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Entry and Exit Decisions

Hello,

When manual back test or thinking about a strategy/idea to implement:

how do you decide what entry and exit to use?

Does it start with risk management and how much you want to lose per trade?

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  #2 (permalink)
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  #3 (permalink)
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I would ask : "what is your edge" ?

If you enter a trader, long or short, why are you entering and what is the edge you have identified that
this entry is a good entry ?

Subsequent there is the discussion of the exit, if you don't know there are a couple ways to approach it

Kills the trade can be based on :
- risk management
- the "thing" that is your, says you don't need to be in this trade any more
- any other thing that you have identified , that justifies to kill the trade, base on risk or edge

For me, starting a trade based on risk, seems the opposite world
For me, risk management can only tell me, not to take a certain trade, not inverse

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  #4 (permalink)
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rleplae View Post
I would ask : "what is your edge" ?

If you enter a trader, long or short, why are you entering and what is the edge you have identified that
this entry is a good entry ?

Subsequent there is the discussion of the exit, if you don't know there are a couple ways to approach it

Kills the trade can be based on :
- risk management
- the "thing" that is your, says you don't need to be in this trade any more
- any other thing that you have identified , that justifies to kill the trade, base on risk or edge

For me, starting a trade based on risk, seems the opposite world
For me, risk management can only tell me, not to take a certain trade, not inverse

Thank you rleplae,

Attached is my edge. My edge is I know how to identify daily support and resistance, and I identify with my eyes the direction of price. The trend of the moment, I call it. I gained this edge from 2 years of just look in that the chart alone each morning. No indicators, just watch whichever way price goes each day.

I would like to enter the trade once price had broken the next level of support or resistance. That is my confirmation that price may continue to in that direction, and I may be profitable.

See my attachment example: I would like to go short below the green line somewhere.

My problem: I don't know where to enter once price has broken and MOST importantly, I do not know what data to collect when manual back testing that will allow me to analyze optimal entry, stop loss, profit taking.

My Possible solution for stop loss: Decide max amount of money i want to lose per trade, one contract. This is my stop loss. Example, -$150. 15 ticks for /CL.

My Possible solution for entry: I don't know, 5 ticks below the green line with a stop market order.

My possible solution for break-even: Common sense, if I am up $150 bring stop to break even. Just my thinking.

My possible solution for profit taking: 1. Trail by 15 ticks 2. Exit for 15 ticks 3. Exit at next support 4. Exit at 30 ticks. I have no idea.

Here is my road block and current weakness? I have no idea how to collect data to test the optima entry, exit, stop loss, nor breakeven besides risk management I explained above. I would hate to do months of backtesting this idea to find, I forgot to record something that is needed during the data analysis.

1. How do I build a spreadsheet so I can collect data to determine the above "I don't knows"?

2. Do traders build programs to test alll the different scenarios above?

So here is where I am with my idea/strategy. I want to determine if my idea is profitable, but I want to be efficient as possible.

Thanks for any help

Attached Thumbnails
Entry and Exit Decisions-screenshot_3.png   Entry and Exit Decisions-screenshot_2.png  

Last edited by goodoboy; December 30th, 2016 at 12:46 PM.
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  #5 (permalink)
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Here are the problems you will face :

1. false break-out, sometimes the price will break the level and when you are in the trade,
the price will rotate and just come back, it is known as a 'false break-out', some people are
by purpose moving the price to simulate a break-out, to trigger all the stops and and then
revert it.

two things you can do :
- try to find a means of detecting, is it a break-out legitimate or not ?
- deal with it and measure statistically if it is still profitable in the long run

2. if the market is trending, trading is easy, compared to chop market and just sideways
everybody knows that, the question is how do you detect the market is trending and you
will not be caught in chop ?

You can build a strategy that will trade those levels when broken
you can then just replay the historic prices and check what is the result
MAE/MFE, expectancy, % win/loss, etc...

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  #6 (permalink)
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rleplae View Post
Here are the problems you will face :

1. false break-out, sometimes the price will break the level and when you are in the trade,
the price will rotate and just come back, it is known as a 'false break-out', some people are
by purpose moving the price to simulate a break-out, to trigger all the stops and and then
revert it.

two things you can do :
- try to find a means of detecting, is it a break-out legitimate or not ?
- deal with it and measure statistically if it is still profitable in the long run

2. if the market is trending, trading is easy, compared to chop market and just sideways
everybody knows that, the question is how do you detect the market is trending and you
will not be caught in chop ?

You can build a strategy that will trade those levels when broken
you can then just replay the historic prices and check what is the result
MAE/MFE, expectancy, % win/loss, etc...

Thanks,

Please see my new update, I attached wrong picture. i attached picture of daughter at skating ring.

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  #7 (permalink)
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goodoboy View Post
how do you decide what entry and exit to use?


Most of the methods I use are based on finding suitable places for long entries during uptrends and for short entries during downtrends.

I try to identify them from bar patterns according to what I've learnt from the various price action authors whose work has proved most reliable to me. They're all ultimately based on parameters of support and resistance, however localised.



goodoboy View Post
My possible solution for profit taking: 1. Trail by 15 ticks 2. Exit for 15 ticks 3. Exit at next support 4. Exit at 30 ticks. I have no idea.


Personally, I would test all of those, and more - apart from the first one. (I've done enough backtesting and forward testing of different exit methods to believe that the chances of an automated trailing stop ever working out "best" for me are simply too small for monitoring/testing that one to be worthwhile.)

But my "numbers of ticks" to test will always be volatility-related and S/R-related rather than just fixed numbers.

Exits are a big and important part of trade management (more important than entires, in my view), and like all trade management parameters, one ultimately derives/proves them by meticulous testing and the collation of results. It's really labour-intensive and time-consuming. All true but not very helpful, arguably, in that one still has to decide which parameters to test in the first place.

It all depends on the relative extents to which people are motivated by "fear of missing out" and "fear of loss", which in turn depend on their own overall risk management parameters.

I try to combine "not losing too much profit already made" with "not missing out on too much future profit potentially available" by dividing my trade, closing some proportion of it at a fixed target according to the volatility, and seeing if the remaining part will go further, depending on anticipated support or resistance. It's just what I was taught to do.

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  #8 (permalink)
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rleplae View Post
Here are the problems you will face :

1. false break-out, sometimes the price will break the level and when you are in the trade,
the price will rotate and just come back, it is known as a 'false break-out', some people are
by purpose moving the price to simulate a break-out, to trigger all the stops and and then
revert it. Thank you, for each trade I decided to determine the max distance price goes below the support (same for resistance). This could be 3, 4, 5, 6, 7, etc ticks. I do not know, so I will measure it and quantify after data collection. So in my spreadsheet, for each trade, I input: how much price went below support (or above resistance) before reversing in the other direction for a loss. I am not sure how i will quantify this after data collection for my edge/advantage.

two things you can do :
- try to find a means of detecting, is it a break-out legitimate or not ?
- deal with it and measure statistically if it is still profitable in the long run I will deal with it for now and measure the distances these fake-out occurs, if not making $150 of profit, then reverse in opposite direction.

2. if the market is trending, trading is easy, compared to chop market and just sideways
everybody knows that, the question is how do you detect the market is trending and you
will not be caught in chop ?I detect if market is trending in the morning with my eyes. If price is dropping, trend of the moment is down, i wait for support to break to go short. If price is moving up, i go long above resistance. For chop, if price breaks below support, and stalls, nothing I can do but wait. After two stop out in same direction at same support or resistance, I wait for next level to break.

You can build a strategy that will trade those levels when broken
you can then just replay the historic prices and check what is the result
MAE/MFE, expectancy, % win/loss, etc... I struggle with MAE and MFE purpose. I understand the meaning, but how will this help me after data collection? If my initial stop is 15 ticks, and the average MAE after data collection is 10 ticks, should me stop be 10 ticks?

Thanks for your help.

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  #9 (permalink)
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Thank you so much Tymbeline,

I have to admire someone who puts thought into how they plan to trade.


Tymbeline View Post
Most of the methods I use are based on finding suitable places for long entries during uptrends and for short entries during downtrends.

I try to identify them from bar patterns according to what I've learnt from the various price action authors whose work has proved most reliable to me. They're all ultimately based on parameters of support and resistance, however localised.
May I please have your recommendations of authors?





Personally, I would test all of those, and more - apart from the first one. (I've done enough backtesting and forward testing of different exit methods to believe that the chances of an automated trailing stop ever working out "best" for me are simply too small for monitoring/testing that one to be worthwhile.)This is where I am. I do not want to start backtesting or forward testing until I have all the parameters and reason why for these parameters that I need to collect. Backtesting is tedious, and I spent countless hours backtesting the wrong parameters thus far. So that's why i am taking my time to determine what I data I need to before backtesting to make rationale decisions. And yes, it is alot of thinking. I am testing a trailing stop of 15 ticks now because rationally I bring stop to breakeven after 15 tick of profit. I am also testing taking profit at 15 ticks for R:R of 1. Also profit taking of R:R 2. The list can go on and on, and I hope MFE can help with this. Also record data, how much profit could have been made if not stop out or breakeven. Just incase I just want to sit and wait for higher targets. I also, test trading 2 contracts. Taking profit on one contract at 15 ticks, and trailing the others.

But my "numbers of ticks" to test will always be volatility-related and S/R-related rather than just fixed numbers. I agree, I don't like fix numbers without some logical reasoning for it.

Exits are a big and important part of trade management (more important than entires, in my view), and like all trade management parameters, one ultimately derives/proves them by meticulous testing and the collation of results. It's really labour-intensive and time-consuming. All true but not very helpful, arguably, in that one still has to decide which parameters to test in the first place.Agreed and decided which parameters to test is complexing. I don't understand how one makes the decision. Is it based on income goals, feelings, comfort zone, MFE? I don't know so i test them all, even scalping for some ticks, before price turns the other way. This is why I collect in my data when I enter a trade, i want to know how many ticks in my favor price went. Maybe the strategy can be for use for scalping only. Atleast I will have the data to collect this.

It all depends on the relative extents to which people are motivated by "fear of missing out" and "fear of loss", which in turn depend on their own overall risk management parameters.

I try to combine "not losing too much profit already made" with "not missing out on too much future profit potentially available" by dividing my trade, closing some proportion of it at a fixed target according to the volatility, and seeing if the remaining part will go further, depending on anticipated support or resistance. It's just what I was taught to do.

What I am learning is that a trader really does not know how profitable his system can be if traders does not record the right data. The trader initial idea of the system after backtesting may results in profitability some other way. For me, I would not want to backtest manually some data for a month or so, to find out I missed some critical information.

Out of curiosity, for a system like I am discussing here, can someone program all the parameters of interesting and the automatically backtest and obtain the results rather then manual backtesting. In the future, after I do some backtesting, this will be my goal.

I appreciate your thoughts. I just bought a book by Kevin Davey, Building Winning Algorithmic Trading Systems, although I don't know how to program, not yet anyway, I look forward to his method on building and testing systems.

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  #10 (permalink)
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My approach is to start with my goal.

My system (which is a series of subsystems) initially, set out to estimate what the HOD and LOD would be and which one was first. I then added estimating what the first leg of the day would be - where and when would it start and end.

I have set a rule that I want trades of 6pts or more (ES). From this other things flow.
For example, if I want 6PPP (6 pt profit potential) then it is not worth trading days of less than 12 pt range.

--------------------------------
You asked about risk management / stop loss for setting your rules.
I think of it the other way around. Where is the profit potential?

--------------------------------
"where do I place my entries/exits?"

If there is an uptrend for the first leg
AND
the distance to the HOD is 6pt +
THEN
I would enter long at the estimated first point with a target of the HOD
and a stop of 5pts

If there is an uptrend for the first leg
AND
the distance to the HOD < 6pt
THEN
I would enter short after the HOD with a target of the LOD
and a stop of 5pts

Exit = price exhaustion
Stop loss adjustment = BE once price has moved 5pts in my favour.

... so it continues for other situations.

If my signals are unclear prior to the opening I would wait until the market had shown:
HOD first
or
LOD first
or
choppy sideways mess.

-------
I don't think any of the above is useful to your situation as it appears you are looking for indicator based system.
From your comments on S/R levels I would suggest (for the ES) that a 50% retracement point be considered.

IHIH

Keep your mind in the future, in the now.

Last edited by aquarian1; December 30th, 2016 at 03:04 PM.
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