Dump it Here

[Newt]

Missed quite a few posts in Oct and catching up now found the comparison of daily and weekly approaches from so many contributors fascinating. Thanks again Skate for stirring up such thought provoking discussions.

So many ways to trade, but love seeing the rules and discipline each brings to their chosen approach.

 

[KingJim007]

The market is fascinating

One of the reasons that the market is so fascinating is that it combines elements of psychology, business, mathematics, and numerous other disciplines and sciences.

Skate.

You forgot fortune telling!

 

[Skate]

You forgot fortune telling!

Hi @KingJim007, I didn't forget - it's all covered, see below

The market is fascinating - One of the reasons that the market is so fascinating is that it combines elements of psychology, business, mathematics, "and numerous other disciplines" and sciences.

There is also a free copy of my downloadable eBook if interested - found here: https://www.aussiestockforums.com/posts/1014728/

Skate.

 

[Gringotts Bank]

WHY FACTS DON’T CHANGE OUR MINDS

Fact

Even after the evidence “for their beliefs has been totally refuted, people fail to make appropriate revisions in those beliefs,”

Confirmation bias

Consider what’s become known as “confirmation bias,” the tendency people have to embrace information that supports their beliefs and reject information that contradicts them. Of the many forms of faulty thinking that have been identified, confirmation bias is among the best.

If reason is designed to generate sound judgments, then it’s hard to conceive of a more serious design flaw than confirmation bias.

Skate.

So many automatic thoughts are triggered when you're wrong. When "I'm clearly wrong here" is bouncing around in the mind, very soon after comes "mummy and daddy only love me when I'm right" or whetever your particular circumstances might dictate ("I'm bad, I'm hopeless, god hates me", etc. etc.). And then it cascades because a lot of the time it's hidden from cosncious awareness - like a virus that interferes with your computer, but you don't even know you have one. Why do my shoulders feel so tight? Why does my back hurt? Why do I feel irritable? I wonder.

Ego defense mechanisms protect us from experiencing these painful feelings. We deny being wrong, repress the pain, project it onto others, ruminate, rationalize, intellectualize, becomes withdrawn, etc. There's a huge range of possibilities for avoiding emotional pain via ego defense. And every one of these defenses creates more problems down the track. For example, we lose objectivity, we get triggered and don't know why, we lose access to subtle feelings which can guide decision-making (especially important in discretionary trading), and so on.

"Cutting your losses is liberating". Yes, because it brings an end to the tension inherent in holding excessive open losses. But the end goal is to cut losses early and without tension, not because the tension is repressed, but because the triggering memories have been processed and released from your system.

 

[Skate]

So many automatic thoughts are triggered when you're wrong. Ego defense mechanisms protect us from experiencing these painful feelings. We deny being wrong, or repress the pain or project it onto others. For example, we lose objectivity, we get triggered and don't know why, we lose access to subtle feelings which can guide decision-making (especially important in discretionary trading), and so on.

@Gringotts Bank what a great post.

A a species we are flawed
Winners take responsibility. Losers place blame as clearly stated above "We deny being wrong, or repress the pain or project it onto others".

One step further
The difference between winners & losers is their psychological outlook. Your psychology plays the biggest part when it comes to trading because it controls your perception driving your reactions. You can condition how & what to think, meaning you can train your "psychological outlook" allowing you to be able to overcome or handle the stress & pressure when things go horribly wrong.

Self control
It’s vital and very important to learn how to train your mind to accept stress when trading. Controlling your emotions, training your mind to stay calm under pressure, responding, rather than reacting to a situation, controlling how and what you think is so important in this game.

Summary
How you react to stress IMO will decide whether you’ll be a success or a failure at trading.

Skate.

 

[Gringotts Bank]

@Gringotts Bank

You can condition how & what to think, meaning you can train your "psychological outlook" allowing you to be able to overcome or handle the stress & pressure when things go horribly wrong.

Self control
It’s vital and very important to learn how to train your mind to accept stress when trading. Controlling your emotions, training your mind to stay calm under pressure, responding, rather than reacting to a situation, controlling how and what you think is so important in this game.

Skate.

Thanks. Yes I hadn't considered that here, but it's definitely possible to create and attach new meanings to negative events. We can re-associate "I am clearly wrong here" with positive thoughts such as "...and I always learn new things when I'm wrong, so my process is always improving". Actually, you can re-associate it with anything positive, even an image of your dog smiling and wagging his tail. "I'm wrong" -> happy dog. Re-association. One potential difficulty with re-association is the reverse effect, ie. that your happy dog can now remind you of losing trades and send you into a negative spiral.

There's a bit of a debate about whether the old associations (eg. "...and mummy/daddy only love me when I'm right") can ever be overriden this way. If we use a process of re-assocition with positives, it's likely we end up with a split mind (like a partitioned hard drive). This then requires enormous strain and continual effort to stay on the right track. Any lapse in effort willl have us back on the wrong track where we feel overwhelmed and ineffectual, with a tendency to make bad decisions.

My understanding is that a release of the negative is required for full functioning of the mind. That's not necessarily a comfortable process.

 

[Skate]

@RickyY has two recent lengthy threads prompting me to make a few comments about trading with an edge.

Trading System
When you have a trading system - Confirm that your strategy has an edge that you can confidently trade remembering "an edge needs time to work" as @peter2 has remarked below. If you are after an edge please read @peter2 "p2-asx-weekly-portfolio" thread as the results of his style of trading is fully discussed & his recent trading results speak for themselves - https://www.aussiestockforums.com/posts/1045628/

Peter2 "condensed comment" from his "p2-asx-weekly-portfolio" thread
Entries and money management are as important as trade management (exits). A trailing stop (TS) is designed to protect open profits. There's no point using one until there's sufficient profits to protect. Traders starting out don't understand that an edge needs time to work out. The smaller the edge the more time it needs to appear. Once a portfolio that is operating on longer time frames is established, there is not a lot to do. Remember, we're collecting winning trades. We ditch our losers. Don't sabotage a robust system by fiddling with it. The most important thing is to create and apply a consistent approach.

@tech/a posted in Peter2 "p2-asx-weekly-portfolio" thread

Absolute Gold. Why people think they need to pay for someone or some method to lead them to profit----.?

Confirmation
I'm re-posting a screen capture from the "p2-asx-weekly-portfolio" thread without permission confirming Peter2 trading method has an edge & is profitable.





All roads lead to Rome.
Which means, the same outcome can be reached by many methods or ideas. Peter2 uses a lot of discretion when trading based on his interpretation of current market observations & current sentiment whereas I lack those talents relying on a coded systematic weekly trend trading system with the same end game in mind - generated profits over time. Trading is a marathon not a sprint.

Trend trading is not complex
After reading till my eyes bled I soon realised why I shouldn't re-invent the wheel. Trend Trading is a simple process & easy to code that never goes out of vogue. Trend traders buy confirmed breakouts & sells when the trend ends. Boring but profitable.

Trend Trading - Confirmation of my trading results
I'm posting a screen capture of my Hybrid Strategy for the same period, Jan 2019 till end-of-trade today confirming trading with the trend still works. The Equity Curve below confirms trading is not always a smooth process.



Skate.

 

[tyson2710]

ISX - Someone knew (the timeline)
10/9/2019 - closed $1.645 (in a very long up trend)
11/9/2019 - unexpected - large down-bar closing at $1.41
12/9/2019 - another large down-bar closing at $0.93 (this triggered my trailing stop)
13/9/2019 - Adverse News Report released at 9.31 am
13/9/2019 - My exit was already in the pre-auction before the news release
13/9/2019 - Exited ISX at the opening price. Skate.

I think Skate was right about this one 3 weeks before the $hit "hit the fan", yes I believe someone knew something to quickly offload their shares before a negative news announcement was release. The ASX has suspended ISX since the 1st October and I wonder what will happen when the suspension is lifted, I'm glad I don't own it.

 

[Newt]

I'm still enjoying listening to the "Trading Story" Podcast at the moment.

Episode 99 with Dr Brett Steenbarger was a goodie - there is a fantastic analogy where BS compares creativity in trading to "recipes". Nothing wrong with following established recipes starting out, but as you become more experienced you need to use some creativity and follow your own instincts, skills, personal strengths to customise your own "recipes".

You wouldn't expect 10 restaurants to serve the same meal for a dish, and neither should 10 traders with similar systems follow identical paths.

https://podtail.com/en/podcast/trad...rading-psychology-2-0-with-brett-steenbarger/


Spoiler - the host gives up on mastering trading (again) by podcast 113. Its a jungle out there....!

 

[Skate]

Lets talk about EXITS
IMO - the timing of your exit has to be the most important part of your trading Strategy. New trader spend a lot of time researching, reading articles, books & searching the forums looking for the best trade entry, with little or no effort in structuring an exit plan. Finding entry conditions are a dime-a-dozen, whether they are trend breakouts or pullbacks with in a trend or trend continuations it doesn't matter. There are multitudes of reasons to enter a trade, knowing when to get out is the most important.

Out of your control
What happens after you enter a position is out of your control, all you can do from here on is to hang for the ride. Not knowing what will happen next is the scary part of trading. When a trade goes against you & how you handle the position will eventually decide how successful you will be as a trader. As @Warr87 has stated your "trading psychology" is important in this game.

Inconsistent trading results
Having a poor exit plan or having a discretionary exit plan using gut feelings can lead to inconsistencies in your trading results. The importance of an exit can be debated but it’s important to remember they really determine the final outcome of a trade leading to the long-term success or failure of a trading system.

Common problems of trade exits
1. Executing a stop too late - hoping, wishing or praying the position will come back to break-even is where bad habits start. By not exiting at the correct time can let a small loss get out of hand quick smart.
2. Taking profits too early - thinking what might happen is another bad habit. When it comes to the markets what you "think" is irrelevant – the markets will do what the markets will do.

Summary
Poor trading results can normally be attributed to one of these two mistakes & it all stems from not knowing when or how to get out of a trade confirming "the exit" is the most important part of any trading plan or strategy.

Hey guys & gals - Why do you exit a position ?
@peter2 & myself have listed a variety of reasons in our respective threads why we exit a position & I'm thinking it would be helpful for others to read what is the catalyst why you exit a position. Lets make a repository of exits in the "Dump it here" thread for the benefit of others.

Skate.

 

[Wyatt]

OK, I'll start here as I have plenty to learn.

My exits are simply a weekly close below 100 day SMA and position score outside of top 20% (variable) of stocks in $XAO (top 100) as rated by position score which is just momentum measured over a chosen lookback period. No rocket science there.

I've wondered about using your ROC(close,20) as an additional stale stop, but as I'm a coding dumbass, I'll have to consult my mentor about that.

I also agree with your statement @Skate about exits being the most important and overlooked aspect of trading.

 

[Skate]

OK, I'll start here as I have plenty to learn. My exits are simply a weekly close below 100 day SMA and position score outside of top 20% (variable) of stocks in $XAO (top 100) as rated by position score which is just momentum measured over a chosen lookback period. No rocket science there. I've wondered about using your ROC(close,20) as an additional stale stop, but as I'm a coding dumbass, I'll have to consult my mentor about that. I also agree with your statement @Skate about exits being the most important and overlooked aspect of trading.

@Wyatt, thanks for being the first to outline your exit strategy. I'm positive others will backtest your exit strategy to find if there is an application that may be beneficial to their trading results. The "Dump it here" thread is not about being 'right or wrong' - it's a thread to express ideas not a contest of ideas.

Exits
I have stated many times - I believe "exits" is where the money is made, when others disagree the "Dump it here" thread gives a perfect platform for others to express an alternative view rather than criticise a post. I'm now hoping @peter2 will post his exit ideas as it makes no difference whether they are discretionary or hard coded.

Skate.

 

[Skate]

Robust discussions
1. There is always a robust discussion when Discretionary trading verses Technical trading is raised - I'm a believer if it works for you it's right for you.
2. There is always a robust discussion when it comes to the "entry & exit" & which is more important when it comes to the profitability of any trading plan - some will express money management, position sizing or risk management is more important.

Now lets talk about finding the Holy Grail
First off, let me make a disclaimer: there is a major distinction between "The Holy Grail" & your "Holy Grail"

Finding your Holy Grail
The market is a completely chaotic & unpredictable due to the infinite amount of information pouring into the markets second-by-second, let alone tweets by the 'Donald'. A seasoned trader doesn’t try to predict the market, but trades probabilities. We can learn to analyse the markets but if we don't learn to understand our own "trading psychology" it will be all for nought. Without the confidence in your trading plan/system or strategy you won’t keep pulling the trigger when the going gets tough regardless of how good you think your system is.

Sticking to your plan
Trading in a disciplined manner by following your trading plan without override your system - I think you have just found your “Holy Grail”.

Skate.

 

[Habakkuk]

Question: Is it possible to code an exit that has an edge? An edge all by itself is what I'm asking.
Random entry any time and then exit mechanically, systematically, not discretionary.
That should be clear enough, but just in case, your code must have:
Buy = 1;
Buyprice = something that is obtainable, like Open or Close, not Low.
I don't think it can be done but I could be wrong. It is obvious that some exits work better than others but that's not the issue. I'm not asking for secrets or the code, just whether anyone can say that they have statistical evidence of such an exit. (and not just quoting Van Tharp)

 

[peter2]

EXITS of a short to medium term trader.

(1) Initial Stop Loss exit (iSL): This is the first exit I consider. This exit is important because it's placed at a price that if traded indicates that my timing or my chart analysis is wrong. This exit is also important because I use it to calculate my position size. I don't buy a fixed dollar amount, rather, I risk a fixed fraction (ie 0.5% - 1%) of my total account.

If price closes below this level I must sell. My timing or analysis is wrong and I must realise the loss immediately because if my timing or analysis is wrong then the price is probably going to fall further. If my iSL is below support and support fails, price is likely to fall further. Sell!

Acting on this exit is the first important skill to master in order to be a profitable trader. Learning this skill will enable a new trader to survive long enough to learn the next important skill.

(2) Trailing Stop exit (TS): Once our trade becomes profitable this is the exit we have to master next. Mastering this exit is difficult. Most profitable traders will tell you that they still haven't mastered this one yet. However they do know what they have to do in order to be profitable.

This exit stop is only ever raised not lowered (after a buy setup). The method that we use to raise our TS must match the type of movement we're trying to profit from.

If our aim is to profit from a very short term move then we may raise the TS below the prior days low or use a short term moving average or a volatility measure from the recent high.

If our aim is to profit from a medium term trend then I would suggest raising the stop below recent higher swing lows. This is difficult because the trader must allow prices to pull-back to form these higher lows. Prices normally pull-back to 50% - 62% levels of the prior move up. In these situations this means losing >50% of our open profits. This is the worst time to close your trade as we have all experienced.

Raising our TS higher reduces the trade heat (downside exposure) and protects open profits. Don't raise your TS until you've earned above average profits in the trade. Your past trade stats will indicate when this happens.

Letting or profits get bigger is the second important skill that we must master and it relies on how we manage the trailing stop exit.

(3) Price Target exit (PT): Generally only used by short term traders. Must never be used by trend traders.

 

[Skate]

Question: Is it possible to code an exit that has an edge? An edge all by itself is what I'm asking.
Random entry any time and then exit mechanically, systematically, not discretionary. That should be clear enough, but just in case, your code must have:
Buy = 1; Buyprice = something that is obtainable, like Open or Close, not Low. I don't think it can be done but I could be wrong. It is obvious that some exits work better than others but that's not the issue. I'm not asking for secrets or the code, just whether anyone can say that they have statistical evidence of such an exit. (and not just quoting Van Tharp)

@Habakkuk, that's a great question.

Lets talk about an edge
Without an edge you'll just be an "also ran" meaning your trading wouldn't be profitable. An edge comes in many forms but it's all about consistency. Trend traders jump on confirmed trends & jumping off when the trend slow, stops or reverses.

Its been posted
The 'Dump it here' thread lists strategies & code that I trade - the posts also include some Amibroker code & how I enter & exits a trade - I've even listed the indicators I use, let alone my equity curve, it's all been previously posted - It's all simple stuff.

Lets recap
Traders buy a position in the hope of offloading the position at a higher price at a later date. That's it in a nutshell. Season traders are all about chasing stock that has volatility, without volatility there is no money to be made.

Exits
Different strategies require different exits, it's about dancing to the music being played. Not one exit works for every strategy. The charts tell a story in hindsight "but" we trade on the right side of the chart, meaning we trade the last bar. The last price bar is currently a representation of all the emotions in the markets or an individual position in real time. Remember the price displayed is always correct.

Simple exit
If you want a simple exit that will work, try this: Sell when there is 5 lower highs than the last highest high bar. Meaning if the position is not moving up or it's stagnating - sell the sucker & look for another position, they are coming along all the time.

Skate.

 

[Skate]

EXITS of a short to medium term trader.

(1) Initial Stop Loss exit (iSL): This is the first exit I consider. This exit is important because it's placed at a price that if traded indicates that my timing or my chart analysis is wrong. This exit is also important because I use it to calculate my position size. I don't buy a fixed dollar amount, rather, I risk a fixed fraction (ie 0.5% - 1%) of my total account.

If price closes below this level I must sell. My timing or analysis is wrong and I must realise the loss immediately because if my timing or analysis is wrong then the price is probably going to fall further. If my iSL is below support and support fails, price is likely to fall further. Sell!

Acting on this exit is the first important skill to master in order to be a profitable trader. Learning this skill will enable a new trader to survive long enough to learn the next important skill.

(2) Trailing Stop exit (TS): Once our trade becomes profitable this is the exit we have to master next. Mastering this exit is difficult. Most profitable traders will tell you that they still haven't mastered this one yet. However they do know what they have to do in order to be profitable.

This exit stop is only ever raised not lowered (after a buy setup). The method that we use to raise our TS must match the type of movement we're trying to profit from.

If our aim is to profit from a very short term move then we may raise the TS below the prior days low or use a short term moving average or a volatility measure from the recent high.

If our aim is to profit from a medium term trend then I would suggest raising the stop below recent higher swing lows. This is difficult because the trader must allow prices to pull-back to form these higher lows. Prices normally pull-back to 50% - 62% levels of the prior move up. In these situations this means losing >50% of our open profits. This is the worst time to close your trade as we have all experienced.

Raising our TS higher reduces the trade heat (downside exposure) and protects open profits. Don't raise your TS until you've earned above average profits in the trade. Your past trade stats will indicate when this happens.

Letting or profits get bigger is the second important skill that we must master and it relies on how we manage the trailing stop exit.

(3) Price Target exit (PT): Generally only used by short term traders. Must never be used by trend traders.

@peter2 , with deep appreciation, the very essence of this thread, helping others.

Moreover
You have also mentioned once or twice about discretionary exits on takeover & capital raising announcements.

Skate.

 

[Skate]

An edge all by itself is what I'm asking. Random entry any time and then exit mechanically, systematically, not discretionary. I don't think it can be done but I could be wrong. It is obvious that some exits work better than others but that's not the issue. I'm not asking for secrets or the code, just whether anyone can say that they have statistical evidence of such an exit.

@Habakkuk - I'm posting a small extract from a recent 'PM' from a member without permission - As "No names" or "personal information" is displayed I'm sure they won't mind. I made a small modification to exit of the strategy with major improvements. The exit matters & yes they are easily coded.

Small extract of a "Private Message"
"I'm shocked at how a few adjustments have completely changed the system. I even went and ran your code at 2008 and it treated it like a non-event. There is a lot to digest in there and I plan on going over this code to see how/why it improved everything so much. From what I understand the StaleStop you put in will look at the ROC at the specified time in the StaleStopDefault where the param statement is. Also noticed the change in the buy condition, and saw you removed my sell condition. I wouldn't have thought that would have been a good sell condition but it makes sense. And to clarify, do you want me to not trade this because it is your code or because its not ready? I am now feeling like I am clueless as I wouldn't have thought to make the changes you did."

Statistical evidence of such a Re-Engineered exit
From this...



To this..


$300K positions








Recap
The exit makes a difference.

Skate.

 

[ducati916]

Exits:

I use a number of different exits depending on what I'm trading.

1. Exits are correlated to the time period of the trade. As Peter has already indicated, the shorter the time frame, the greater the requirement for a target exit. These might be exit at $X or %profit.

2. Ratio exit trades. Used for indefinite holding periods where the desire is to build (compound) returns. Usually reserved for ETFs, Closed End Funds, etc.

3. Extrinsic exits. Used when trading an asset class (or sector) as opposed to individual stock. For example commodities v bonds, or banks v consumer staples, etc. So a signal from one will trigger the exit in the other. Bonds/Commodities as an example.

4. Volatility expansion/contraction. Simply based on a calculation of ranked volatility. Sell high, buy low. The advantage being that volatility measures are very consistent.

5. Convergence trades at convergence (modified target trade). All pairs trades.

jog on
duc

 

[peter2]

Moreover
You have also mentioned once or twice about discretionary exits on takeover & capital raising announcements.

Trailing exits are used to control the downside exposure of each trade and the portfolio as a whole. I've often raised a few trailing stops to reduce the downside exposure of the portfolio when market conditions look unsuitable for my system (falling market).

Trailing stops are also used to exit a position that is going sideways so that the capital can be used on other opportunities. @Skate's stale exit is one example.

Overall, trailing stop strategies do a good job of handling routine market price movements. However markets are often interrupted by the release of new information. New information can dramatically interfere with the normal supply, demand interaction and cause prices to spike up or down.

I've a set of rules or guidelines that indicate what I should do when price moves dramatically after the release of news. I call these rules discretionary because I'm unable to back test the effectiveness of the rules. I believe they add to my edge but I'm unable to prove it.

eg.
IF the company receives a takeover offer and spikes significantly higher
THEN I should sell after reviewing the offer and directors' recommendation.

I believe doing this adds to my edge because I grab the extra profit and can re-deploy the capital into new opportunities. The risk is that I'll miss out if the offer is increased (what are the odds?). The reward is that I've grabbed the extra profit in case the offer is rescinded (What are the odds? CWN, VOC in 2019).