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Holding period optimization.
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Holding period optimization.

  #1 (permalink)
Elite Member
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Holding period optimization.

Hi all,

I am new to these forums but have been trading for 10 years now, with it being my profession for the past 2 years. Anyway, this is my first post here, so if this concept does sound silly or has been dealt with, please go easy on me!

I have recently (6 months ago), started keeping a trading journal for my CFD account, in which I primarily run a breakout strategy based on price and the On balance volume indicator. I use a 1:1 risk/reward ratio on all trades and my record is 68% winners as things currently stand.

Anyway, looking back on my stats, my average winning trade lasted 8 days with a standard deviation of 5. My average losing trade lasted 12 days with a standard deviation of 8. Given these statistics, I am thinking of adding a rule to my trading system that I exit all trades that have been running longer than 20 days (or a number based on my average holding period of winners). My reason for this is that I want my capital to be used more effectively - I.e. if I know that the majority of my trades are hitting their stops/targets within 13 days then a trade that has been running for 30 days is not using my capital effectively.

What are your thoughts around this? Has anyone had a similar view to me with regards to their own trading statistics?

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  #3 (permalink)
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Seems logical, but you are going to have to test it. If you are using fixed stops, then that would give you greater than 95% of your full winners and only 68% of your full losers. If you aren't using fixed stops, then your losers may end up being bigger. Regardless, the 32% losers you are whacking could be insignificant to the 5% of the winners you are whacking.

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  #4 (permalink)
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DayTrader1 View Post
Hi all,

I am new to these forums but have been trading for 10 years now, with it being my profession for the past 2 years. Anyway, this is my first post here, so if this concept does sound silly or has been dealt with, please go easy on me!

I have recently (6 months ago), started keeping a trading journal for my CFD account, in which I primarily run a breakout strategy based on price and the On balance volume indicator. I use a 1:1 risk/reward ratio on all trades and my record is 68% winners as things currently stand.

Anyway, looking back on my stats, my average winning trade lasted 8 days with a standard deviation of 5. My average losing trade lasted 12 days with a standard deviation of 8. Given these statistics, I am thinking of adding a rule to my trading system that I exit all trades that have been running longer than 20 days (or a number based on my average holding period of winners). My reason for this is that I want my capital to be used more effectively - I.e. if I know that the majority of my trades are hitting their stops/targets within 13 days then a trade that has been running for 30 days is not using my capital effectively.

What are your thoughts around this? Has anyone had a similar view to me with regards to their own trading statistics?

The concept makes sense, with my warning below. I would worry about the relatively short time period you are looking at (6 months), and if there are enough trades in your sample.

My experience: the problem with making changes like this is that you can get into an infinite loop of changes and more changes. Every time, you think you are getting closer ("my backtest looks better!") but really you are just fooling yourself, chasing the impossible (the impossible being hindsight trading).

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #5 (permalink)
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Thanks!

Thanks for the prompt responses!

Vegasfoster, I am not sure I understand your calculations regarding cutting 32% losers vs 5% winners I would be wacking if I use hard stops. (Which I do) Either way, you do make a compelling case in favour of implementing this rule at some stage.

Keninkdog, your thinking is 100% in line with my worry of my sample size (approximately 50 completed trades) being too small to rule out a possibility of statistical coincidence skewing my conclusion. In addition, I have always been petrified of making too many changes to a system that already has a positive expectancy as one can quickly wind up in a state of analysis paralysis!

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  #6 (permalink)
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If you're looking into untying positions for more capital to invest in better opportunities you're probably on the right track because if you're trading break-outs and the positions aren't necessarily "breaking" than why stay in them for a month to find they don't work. It looks as if you're starting to identify momentum as a key area of profit from your swing trades and time is definitely a factor. I'd suggest to create a rule for yourself to not touch the trade until after the 13 days you've suggested.

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