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Average Holding Time and Exits Question
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Average Holding Time and Exits Question

  #1 (permalink)
Salt Lake City Utah USA
 
 
Posts: 10 since Dec 2013
Thanks: 18 given, 1 received

Average Holding Time and Exits Question

For day traders what is your typical average holding time when in a trade, and how do you handle exits on both winning and losing trades. (trail stops, exit into strength, fixed targets, etc.) Do you scalp or play for bigger moves? Thanks.

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  #2 (permalink)
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  #3 (permalink)
North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011


Some answers....

* Most systematic trend strategies will perform best with an end of day exit. This is also not a bad way to trade when first learning to day trade.

* Optimal strategy for most mean reverting markets is to exit into strength. I doubt trailing stops work well for day traders.

* For scalpers/higher frequency traders, I noticed my holding time was around 10 minutes. I know, of another, trader who did very well with like 30 second binary options. The more you can decrease your holding time and assuming you have an edge then the smoother your returns can get. It also reduces your risk per trade. However, as you decrease holding time you must get rock bottom fees or else you won't be able to make a profit after your costs.

* Stop losses can be fixed.

* Whether or not you can scalp or should trend trade is dependent on the volatility and trendiness of the market... As the market trends, the cycle frequency gets faster and the vol drops making scalping difficult or impossible.

* In a look at C2 systems, I noticed those systems with longer holding times from say 24 to 72 hours were more likely to close at their highs then systems with shorter holding times. This may be partially due to the markets like to punish optimization. If you aren't a strict day trader, the flexibility could allow for you to adapt to markets that aren't good for day trading.

* Generally the number of trades you can make per day is going to be a function of volatility. Exceptional volatile markets might offer up to 17 to 18 trades per day. These are extremely rare. With todays market's you probably are better aiming for 1 to 3 trades per day.

* Intraday market data is non stationary and has high variance in serial correlation factors. This means that you will probably have a lot of days where you lose every trade or win every trade.

* I personally like to capture the spread on at least one side. It is not always possible. Sometimes you can capture on both. I think if you market both sides you will absolutely have to increase your holding time. Assuming, the fair market value is the midpoint then on something like the ES you are giving up 1/2 tick per side or 1 whole tick to open and close. Assuming you are only trading for say 5 ticks (12.50*5=62.5) then without even adding in trading cost, you are giving up a 20% of your profits. That's huge! As a rule of thumb, it is very difficult to obtain over 55% win ratio with technical analysis methods, if we assume that we must break even with a 55% win ratio then 12.5/.05 = $250. This yields a rough estimate of your minimum target.

I should add even if you get great at picking your spots and capture both sides (which is possible). You still won't be capturing the full spread. Because as a retailer, you're going to be in the bottom 25% of the book or worse in most cases, we can say you are capturing 25% of a tick. In that case, you need to overcome $6.25 and your minimum target would be 6.25/.05=$125/12.5=10 ticks. Add a couple ticks for stop outs, misses, etc and you're at around $160. This suggest that your minimum target per trade should be somewhere from $150 to $300 when trading the ES. Based on that number, you can calculate the average bar size and the number of bars you want to hold to determine your holding time and also the period (bar time) you should focus on. You might do better with more bars so let's imagine 3 to 5 bars, so let's take a mid average of our estimates say $250, divide that by say 3 bars yields $83. You need to look for a bar type where the bar is appx $83 in size, up to nearest tick $87.5. 7 tick bars or a time frame where most bars are around 7-8 ticks in size. However, most day traders are most successful at the open. So, what you should do is bin the first 2 hours of trade for the past 5 to 30 days and find the average bar time that is closest to 8 ticks. That will suggest your optimal period to trade.


Last edited by tpredictor; September 25th, 2017 at 10:20 AM.
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  #4 (permalink)
singapore
 
 
Posts: 15 since Sep 2017
Thanks: 2 given, 3 received

when I close position really depends on market.

sometimes, market moves rapidly and position is closed within few minutes.

sometimes market moves like tortoise especially commodities and position is closed almost a day later.

Now target profit.
let's say I trade 2 lots.
for first lot, I target risk reward ratio 1:2.5

2nd lot is for stretching target profit.
many ways to stretch :

> shift stop as price progressively move in my favour
> set risk reward ratio at say 1: 4
> simply hold position for many many hours

There is no magical way of setting target profit.

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  #5 (permalink)
SF, CA/USA
 
Trading Experience: Beginner
Platform: SC
Broker/Data: Stage 5
Favorite Futures: ES, 6E, sometimes NQ, and occasionally CL
 
jackbravo's Avatar
 
Posts: 1,328 since Jun 2014
Thanks: 4,166 given, 2,366 received


tpredictor View Post
Some answers....

* Most systematic trend strategies will perform best with an end of day exit. This is also not a bad way to trade when first learning to day trade.

* Optimal strategy for most mean reverting markets is to exit into strength. I doubt trailing stops work well for day traders.

* For scalpers/higher frequency traders, I noticed my holding time was around 10 minutes. I know, of another, trader who did very well with like 30 second binary options. The more you can decrease your holding time and assuming you have an edge then the smoother your returns can get. It also reduces your risk per trade. However, as you decrease holding time you must get rock bottom fees or else you won't be able to make a profit after your costs.

* Stop losses can be fixed.

* Whether or not you can scalp or should trend trade is dependent on the volatility and trendiness of the market... As the market trends, the cycle frequency gets faster and the vol drops making scalping difficult or impossible.

* In a look at C2 systems, I noticed those systems with longer holding times from say 24 to 72 hours were more likely to close at their highs then systems with shorter holding times. This may be partially due to the markets like to punish optimization. If you aren't a strict day trader, the flexibility could allow for you to adapt to markets that aren't good for day trading.

* Generally the number of trades you can make per day is going to be a function of volatility. Exceptional volatile markets might offer up to 17 to 18 trades per day. These are extremely rare. With todays market's you probably are better aiming for 1 to 3 trades per day.

* Intraday market data is non stationary and has high variance in serial correlation factors. This means that you will probably have a lot of days where you lose every trade or win every trade.

* I personally like to capture the spread on at least one side. It is not always possible. Sometimes you can capture on both. I think if you market both sides you will absolutely have to increase your holding time. Assuming, the fair market value is the midpoint then on something like the ES you are giving up 1/2 tick per side or 1 whole tick to open and close. Assuming you are only trading for say 5 ticks (12.50*5=62.5) then without even adding in trading cost, you are giving up a 20% of your profits. That's huge! As a rule of thumb, it is very difficult to obtain over 55% win ratio with technical analysis methods, if we assume that we must break even with a 55% win ratio then 12.5/.05 = $250. This yields a rough estimate of your minimum target.

I should add even if you get great at picking your spots and capture both sides (which is possible). You still won't be capturing the full spread. Because as a retailer, you're going to be in the bottom 25% of the book or worse in most cases, we can say you are capturing 25% of a tick. In that case, you need to overcome $6.25 and your minimum target would be 6.25/.05=$125/12.5=10 ticks. Add a couple ticks for stop outs, misses, etc and you're at around $160. This suggest that your minimum target per trade should be somewhere from $150 to $300 when trading the ES. Based on that number, you can calculate the average bar size and the number of bars you want to hold to determine your holding time and also the period (bar time) you should focus on. You might do better with more bars so let's imagine 3 to 5 bars, so let's take a mid average of our estimates say $250, divide that by say 3 bars yields $83. You need to look for a bar type where the bar is appx $83 in size, up to nearest tick $87.5. 7 tick bars or a time frame where most bars are around 7-8 ticks in size. However, most day traders are most successful at the open. So, what you should do is bin the first 2 hours of trade for the past 5 to 30 days and find the average bar time that is closest to 8 ticks. That will suggest your optimal period to trade.


Wow, awesome post!

1. You don't know the future.
2. Anything can happen in the market, including:
-market stops you out and keeps going to unimaginable levels
-market stops you out and reverses direction to hit your initial target
-market hits your target and keeps going to unimaginable levels
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