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Exits,the major puzzle?
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Exits,the major puzzle?

  #11 (permalink)
Elite Member
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Thanks for the quick reply and for clearing that up.

I do not have any back test data a hand. I have mixed feelings about back testing. I use to live by it. But then I realized that the results varied so much from month to month that I lost faith.

I am working with range bars at this time. So the change from fixed to trailing is based on price. One idea I have been exploring is to enter with 2 contracts and set PT1 at 5 to 10 ticks and PT2 at 42 ticks. Yeah shoot for the moon. When PT1 is reached I set my stop to BE to preserve profit. If price continues to trend I trail it until either stopped out by reversal or PT2 is reached. How big you make PT1 and the BE trigger would depend on volitile the market is. This is kind of a hi-bred scalper strategy. If the the trend is short lived you get a little bite and are out if it really tkaes off you are there.

I looked and looked for a way to determine that magic moment when the market turns so you could ride it that point. I don't think we will ever hear from the trader who has found that. My trailing stop method gets me pretty close.

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  #12 (permalink)
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Autobot View Post
PS. Almost a separate issue/thread is the relative benefits of using a fixed versus flexible target -- my gut says that a fixed target should underperform a flexible target (opposite to the situation for hard versus trailing stops), but this should be tested

I use what I call 'chasing targets'.. ie after the target is hit it will chase the price further into profit until a specified exit condition (usually some number of opposing bars) is reached or if the price drops below the target it will immediately close.

These targets are also 'dynamic' in that they start out with a set target price, but other conditions may trigger the target to activate before that price is met (for instance excessive volatility)

These enhance performance significantly as they often ride a stop hunt or other volatile thrust all the way to the end..

My stops work in a similar fashion, they start out loose and 'ratchet' inward, rather than trailing constantly like a trailing stop. Certain events can cause them to trigger immediately and other events cause instant jump to breakeven or other things like that. This kind of stop is more in tune with market movements than other types because it can take advantage of natural support/resistance levels as they form..

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  #13 (permalink)
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None of this discussion negates the first reply. When you enter a position you are betting on a favorable outcome, and you need to set your exits based on this bet. copying some value from this book or that - or some methodology from here or there - just shows that the person who wrote the book did the math for you. You can never trust the values to remain static for your market type. you need to get your hands on a nice data set that includes defunct symbols, you need to employ walk forward analysis, you need to do monte carlo simulations and find enough examples that break your model. Figure out what your chances of success with that particular strategy. Once you can find a system that has positive expectancy then you can apply money management techniques.

Again i would recommend: The handbook of portfolio ... - Google Books


Here is one of my rules of thumb: if you are consistently making 40% a year in your backtesting, your doomed when you implement it in real life...

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  #14 (permalink)
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sefstrat View Post
I use what I call 'chasing targets'.. These enhance performance significantly

Intuitively this makes sense, but do you have some data to illustrate this, e.g. a plot of performance for your target versus a hard (static) target?


sefstrat View Post
My stops work in a similar fashion, they start out loose and 'ratchet' inward, rather than trailing constantly like a trailing stop. ..

Are you using these in an automated or discretionary system? Again it would be nice to see some data to illustrate the effects on performance, e.g. a plot of stop 'looseness' versus profit --> a very large looseness value would be equivalent to a traditional trailing stop (i.e. which has zero looseness), so would illustrate the difference between these types of stops...

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  #15 (permalink)
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sefstrat View Post
I use what I call 'chasing targets'.. ie after the target is hit it will chase the price further into profit until a specified exit condition (usually some number of opposing bars) is reached or if the price drops below the target it will immediately close.

These targets are also 'dynamic' in that they start out with a set target price, but other conditions may trigger the target to activate before that price is met (for instance excessive volatility)

These enhance performance significantly as they often ride a stop hunt or other volatile thrust all the way to the end..

My stops work in a similar fashion, they start out loose and 'ratchet' inward, rather than trailing constantly like a trailing stop. Certain events can cause them to trigger immediately and other events cause instant jump to breakeven or other things like that. This kind of stop is more in tune with market movements than other types because it can take advantage of natural support/resistance levels as they form..

Interesting idea about the profit targets. Do you set an initial fixed limit or stop order and then modify it or do you place the stop order when conditions have been met. I guess then you would modify that order based on you second set of conditions.

Sounds like your protective stop works like a trailing stop only not based on a fixed amount. Mine is the smae based on conditions.

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  #16 (permalink)
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Autobot View Post
Intuitively this makes sense, but do you have some data to illustrate this, e.g. a plot of performance for your target versus a hard (static) target?

Are you using these in an automated or discretionary system? Again it would be nice to see some data to illustrate the effects on performance, e.g. a plot of stop 'looseness' versus profit --> a very large looseness value would be equivalent to a traditional trailing stop (i.e. which has zero looseness), so would illustrate the difference between these types of stops...

I don't have any commensurable data to compare as my system has been using this kind of target since I started running it live, and some of its elements cannot be backtested (due to use of OnMarketData and timers which don't work right in backtesting or replay).

Of course I could rip out only the targets and backtest it individually, but I will leave that as an exercise for you.. my data wouldn't really be meaningful for you anyways since the performance of this kind of target will vary greatly according to the conditions used to control it.

I think I mislead you with the term looseness, what I meant by that is that my initial stop is wide, or in other words far from the entry price.. but that is more a feature of my entry strategy, it is not necessarily relevant to the 'ratcheting stop' concept. The ratcheting stops do not move in a linear fashion like trailing stop, as I alluded to their movement is based primarily on detection of support/resistance levels and other 'events'


RBSailing View Post
Interesting idea about the profit targets. Do you set an initial fixed limit or stop order and then modify it or do you place the stop order when conditions have been met. I guess then you would modify that order based on you second set of conditions.

Sounds like your protective stop works like a trailing stop only not based on a fixed amount. Mine is the smae based on conditions.

Yes I set limit orders and modify them in the case of both stops and targets. In the case of targets, the initial limit order is set ABOVE the actual target price to allow for the 'chasing targets'.

The reason the targets are done that way has to do with the way the order book is processed by the exchanges, precedence is given to preexisting limit orders so during a volatile thrust or a news release I can sometimes get positive slippage even if I don't have time to modify the limit order before its filled.

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  #17 (permalink)
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Here is another approach to extract maximum from your open position.
This method is suggested by one of our guys -- Eugene Labunsky ( originally published in S&C) :


http://www.quanttradingcapital.com.au/resources/SurfingYourPositionsWithWaveStops.pdf


Take a look. Not revolution in the industry but nice and simple method that can be easily incorporated in any automated strategy. Hard to follow manually though :-)

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  #18 (permalink)
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I ask myself is this a trailing stop a stop loss or a trailing take profit.
If so, then do I re-enter? Or should it be a sign that you should reverse the trade.

Ideally - I dont think that trailing take profit is a bad thing, but then it probably should be done by selling into rallys and buying dips....ie; a take profit.... this is very different to many systems which sell longs on declines.

The question then becomes the issue of where to place the take profit, and how to re-enter if you are wrong.


Ideally I like to try and get a few low risk entries via some sort of automated/mechanical manner with a small stop loss, and then let them run, whenever I think of taking profits on a discretionary manner I ask "where would I re-enter" and "should I reverse", plus "should I add to the position" often the answer to both means that I stick with the original trade.
(sorry I am rambling today)

Point is there is no right or wrong answer, as per any system it is probably more important to match exits and entries, and to be consistent. the chopping and changing does more harm than good.

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