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All in All out Trade Management - how much breathing room?
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All in All out Trade Management - how much breathing room?

  #11 (permalink)
Market Wizard
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I've eliminated B/E stops out of my trading. I take a loss or I take a profit. Sure it's not 'fun' to take a loss after the trade went in your favour first. But don't look at the outcome of 1 trade, look at the results of 20-50-100-... trades.

What you wrote here, takes a long time to realize.
I have set with a very long term trader who uses automation successfully while he illustrated how a change to B/E on the ES after a $500 win does turn the equity curve upside down.
To further your point, not only that its not fun to give profits on open positions, it is rather more
difficult to give back on closed trades and experience drawdowns that don't seem to end .
But, again as you said, it's 50-100 trades that tell the true story.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #12 (permalink)
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Nice thread.

Personally I have no problem with trade management near the beginning and middle portions of the trade ie: when the target is still quite far away. As has been mentioned, the problem comes when you're within a tick or 2 of the target. Or worse yet, the dreaded scenario where price trades at your target but you dont get filled.

I've built in a few rules around how to manage positions as my target gets closer, but im still busy forward testing it. Nothing will work in all situations, there will always be times when the trade management approach you've chosen proves sub-optimal. But I do think that when the trade is within a couple ticks of the target, some form of slightly more aggressive trade management is called for. Personally I cant just sit back and watch as price trades to within a tick of a 30 tick target, and let it come all the way back to BE (or wherever the stop is at that point in time).

Diversification is the only free lunch
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  #13 (permalink)
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PandaWarrior View Post
AIAO is mathematically superior to scaling out. But scaling in is better than AIAO in the sense that it allows you to lose small and win big. See my post about this here https://futures.io/trading-journals/12454-pandawarrior-chronicles-163.html#post332494

I think for me at this beginning stage of experimentation, it is far better emotionally to exit the trade at +27 than +20 which is better than +15 or +10 or BE on some sort of pull back. In other words, let the trade breath but as it gets closer and closer to target, trail it based on some premise. I am using two with trend bars back once it gets reasonably close and then one bar back until it either hits the target or the stop. However the caveat here is this: Whatever happens you must be emotionally ok with it. Even if it goes 100 ticks further in your favor, you have to realize that is what you set out to do and regardless of what "might have been" you are ok. This is the nature of trading. The constant unknown. Learn to embrace the uncertainty of it and let be.

good luck on this....once you get comfortable with whatever method you choose, I think your trading will dramatically improve beyond where it is now.

I am familiar with POPs work and FT71 recommends reading it but does not recommend the active trade management of POP. But more of a mechanical style to reduce "randomness". Although I like the premise of cutting your trades if they are not working,even if its before your stop level. So the stop becomes a line of last defense and your judgement is the first defense. As opposed to always letting the stop take the trade off which is what I think most people do, at least thats what I do.

I have not really considered a scaling in strategy. Most people here are recommending the scale out. But I can't help but think its cutting winners short letting losers run. I have done a random study somewhere on the forum which showed over a large number of trades the results of AIAO vs scale out. But never did a random entry scale in system. I may have to do something like that just to see what happens.

All of this is really system dependant on a performance level. What kind of stops and what kind of management helps or hinders certain systems, under certain conditions. But I was hoping to find at least some kind of rule of thumb so to speak. I think i may redo the entire study and post it here. I have to figure out how to handle the scaling in, scale out and AIAO strategies to make them all comparable. It would atleast be insightful.

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  #14 (permalink)
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treydog999 View Post
All of this is really system dependant on a performance level. What kind of stops and what kind of management helps or hinders certain systems, under certain conditions. But I was hoping to find at least some kind of rule of thumb so to speak. I think i may redo the entire study and post it here. I have to figure out how to handle the scaling in, scale out and AIAO strategies to make them all comparable. It would atleast be insightful.

It would be very interesting to see the results if you decide to do the study. Because as you say, the results will differ not only based on your chosen exit style, but also your entry style. Along with exit style (scale out vs all out), you would also need to test different trailing stop methods for each of those 2 options.

Broadly speaking, studies on the following would be necessary. And if you really want to get more granular, you would need to do each of these for different setups or market environments (trend vs range):
  • All in - All out (no trailing stop)
  • All in - All out (trailing stop - various methods)
  • Scale in - Scale out (no trailing stop)
  • Scale in - Scale out (trailing stop - various methods)
  • All in - Scale out (no trailing stop)
  • All in - Scale out (trailing stop - various methods)
  • Scale in - All out (no trailing stop)
  • Scale in - All out (trailing stop - various methods)

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  #15 (permalink)
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DarkPoolTrading View Post
It would be very interesting to see the results if you decide to do the study. Because as you say, the results will differ not only based on your chosen exit style, but also your entry style. Along with exit style (scale out vs all out), you would also need to test different trailing stop methods for each of those 2 options.

Broadly speaking, studies on the following would be necessary. And if you really want to get more granular, you would need to do each of these for different setups or market environments (trend vs range):
  • All in - All out (no trailing stop)
  • All in - All out (trailing stop - various methods)
  • Scale in - Scale out (no trailing stop)
  • Scale in - Scale out (trailing stop - various methods)
  • All in - Scale out (no trailing stop)
  • All in - Scale out (trailing stop - various methods)
  • Scale in - All out (no trailing stop)
  • Scale in - All out (trailing stop - various methods)

Honestly, i was not considering how many different methods. Considering i am going to use random entries just to find a mathematical advantage. I will take an archetype sample of each. A more comprehensive study would require a lot of help as it may also become market dependent, mean reversion markets vs trend markets. Which is compounded on the fact of systematic differences.

This is one of those gray areas of trading where we can get looped up for ages. I will do a few studies and see if we find anything interesting. Probably over the weekend but I am going to probably keep it simple. If there seems to be interesting findings I can dig deeper.

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treydog999 View Post
Honestly, i was not considering how many different methods. Considering i am going to use random entries just to find a mathematical advantage. I will take an archetype sample of each. A more comprehensive study would require a lot of help as it may also become market dependent, mean reversion markets vs trend markets. Which is compounded on the fact of systematic differences.

This is one of those gray areas of trading where we can get looped up for ages. I will do a few studies and see if we find anything interesting. Probably over the weekend but I am going to probably keep it simple. If there seems to be interesting findings I can dig deeper.

Cool, no problem. That's why I posted that list, because if you really wanted to figure out which option is best for your trading style you would probably need to simulate a good sample size of each of those items. A daunting task for sure.

Never the less. Good luck. Looking forward to seeing your results.

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  #17 (permalink)
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DarkPoolTrading View Post
Nice thread.

Personally I have no problem with trade management near the beginning and middle portions of the trade ie: when the target is still quite far away. As has been mentioned, the problem comes when you're within a tick or 2 of the target. Or worse yet, the dreaded scenario where price trades at your target but you dont get filled.

I've built in a few rules around how to manage positions as my target gets closer, but im still busy forward testing it. Nothing will work in all situations, there will always be times when the trade management approach you've chosen proves sub-optimal. But I do think that when the trade is within a couple ticks of the target, some form of slightly more aggressive trade management is called for. Personally I cant just sit back and watch as price trades to within a tick of a 30 tick target, and let it come all the way back to BE (or wherever the stop is at that point in time).

@DarkPoolTrading you make a good point. I have found on some markets if I want to reach for higher intraday targets a BE type stop move (somewhere in the middle) is really helpful at keeping me out of trouble on the days the range is just not there (of course this based on extensive stats). I think to rule out BE or trailing stops as some do or even I did at one time leaves a tool in the shed that can be helpful.

My number one rule is fast becoming if have a enough statistical evidence and setup shows high probabilities of working who am I to argue.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; May 30th, 2013 at 12:08 PM.
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  #18 (permalink)
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I believe every successful trading plan has a profit taking strategy. Infact I find determining your exit strategy is much more difficult then entry points!

For my trading plan I had to go back and start doing statistics before I came up with 3 different exit conditions. As soon as any of these conditions occur I exit the trade. But you have to find something that works for you and the only way to do that is through statistical analysis of your trades!

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  #19 (permalink)
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Previous Coin toss studies.

i have done a study on a few random exit techniques already. Here are the findings in a different thread. I will expand on them here. These were comparing scaling out vs AIAO using a 2 lot system.


https://futures.io/psychology-money-management/19803-coin-toss-experiment-strategy-6.html#post324692

https://futures.io/psychology-money-management/19803-coin-toss-experiment-strategy-4.html#post321074


I mean it just shows pretty much exactly what we discussed. Scaling out cuttings winners short, but increases win rate. I also looked at moving to break even and having a trailing stop. All of that management converged to zero. Basically using a 2 lot set (either acting as a AIAO or scaling). No trade management affected edge. There was an anomaly with 2:1 reward risk ratio which said that was a negative edge vs random. I am going to re do that one to confirm. Honestly, I forgot I did that study until I started looking through my own archives.

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  #20 (permalink)
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I tested several different kinds of trade management techniques using 6E over a 10 year period. My samples were 39157 as the lowest sample size as large at 130785 trades. So this is definitely approaching the law of large numbers. Guess what?? Trade management DOES NOT MATTER. All trade management techniques converge to 0, without slippage and commissions.


I posted the full results here
https://futures.io/psychology-money-management/19803-coin-toss-experiment-strategy-6.html#post333201

since it made more sense there and continues with the work there.


Basically. Trade management only affects 2 things: Average winner/Loser ratio and % win rate. But they trade off in such a way that the expectancy always converges to 0. I guess you could actually do random trade management and come out the same way. The entry system is going to be the key component to the edge.

I am starting to think that people who say that they scale out to control risk, or scale in to build big winners. its all a bunch of hooey since the other statistics in turn shift to create a net 0 change in expectancy. The only benefit is psychology.

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