- Joined
- 17 February 2021
- Posts
- 39
- Reactions
- 58
I have nothing concrete to back this up with. I wonder if slight down days in larger caps would see rotation into higher volatility stocks by day traders?
I have nothing concrete to back this up with. I wonder if slight down days in larger caps would see rotation into higher volatility stocks by day traders?Not complaining vs today, but i noticed my systems have a tendency to do well/very well on days where the asx is actually slightly down.has anyone noticed the same and has a possible explanation?
I understand i am highly small caps etc.
On big asx200 falls, the systems follow..
I have nothing concrete to back this up with. I wonder if slight down days in larger caps would see rotation into higher volatility stocks by day traders?
Not complaining vs today, but i noticed my systems have a tendency to do well/very well on days where the asx is actually slightly down.has anyone noticed the same and has a possible explanation?
I understand i am highly small caps etc.
On big asx200 falls, the systems follow..
That's a very philosophical viewJumping at shadows
When the markets are having a down day there are those who want to fix something that not broken. Trading has a natural ebb & flow that affects everyone emotionally when they persist in one way or the other.
The Index you trade dictates the risk you are willing to take
When there are a few down days traders start clutching for straws trying to complicate trading. Nothing works perfectly so the next best thing is to accept that sometimes it works well & other times not so. I say just go with the flow & stop looking to answer a question that not being asked. (IMHO) It pays to keep trading simple.
Skate.
That's a very philosophical view
why worry about unexpected gains indeed?
It might be possible to extend this idea further to explain why some people prefer to take an early contrarian view on the markets, antcipating a market reversal and getting on board a new trend early. Whatever that is, it isn't "capturing the meat of the move", and its not trend trading.....
trend following is easy but not for everyone.
Just to say thank you MA, short and consive, argumented, 5 stars?There was some recent discussion here about the relatively low win rate (<50%) associated with breakout based systems. If you don't like the low win rate with vanilla breakout systems I thought I'd give you something to investigate if you want an improved win rate for your breakout system.
This applies to breakout systems that employ a typical stop loss (which seems reasonably common among retail system traders) and for the purposes of this post the entry (breakout) condition is irrelevant. The first chart below shows why some of these breakout system have low win rates. They give up gains and are exited when the stop loss is hit. You may often hear let the phrase "let the winners run" and while this does have some merit it does have a downside. You can see from the chart below that this winner was left to run but is closed out in the redSure, we could employ more sophisticated stop loss mechanism, but this post is not about improving stop losses.
View attachment 122834
There is some statistical logic that suggests as prices move to extremes they will revert back to their mean. If this sounds familiar it is the basis of mean reversion systems. So, let's apply that logic to the above GWA chart and see if we can turn it into a winner. The trusty old Bollinger Bands are a good indicator of price extremities. The chart below has Bollinger Bands overlaid on the price and in this case the upper and lower bands represent 2 SD. This basically means that any close price above the upper BB is an outlier and assuming mean reversion holds true the price in the following bars is likely to pull back towards the lower average. For the statisticians here let's argue another day whether close prices conform to a Gaussian distribution.
You can see in the chart below that the third bar before the stop loss "Sell" that the close of the day closed above the upper BB and sure enough the following bars pulled back. If only we closed out the GWA position following the break of the upper BB this position would have closed out a winner.
View attachment 122838
The above is all well and good in theory so let's see what it does on a more broader scale. I ran some simulation of a breakout system with and without the BB exit. Below are the initial results. Results on the left are for the system without the BB exit and the results on the right are the system with the BB exit. Headline observations include: improved net profit, slightly reduced exposure (makes sense given the significantly reduced hold time for winners), a lot more trades (again, makes sense given the significantly reduced hold time for winners), average profit per trade significantly reduced (makes sense since we are exiting earlier and probably giving up gains that come from longer hold times, but compensated my more trades), over 10% increase in winners, more consecutive losers, and not a lot of difference in system drawdown.
View attachment 122840
The below represents AB's MC analysis. Again, results on the left are for the system without the BB exit and the results on the right are the system with the BB exit. I think these MC results speak for themselves.
View attachment 122846
So in summary -- if you trade breakout systems and your only exit is a plain old vanilla stop loss why not look at augmenting your system with a "profit exit" because sometimes letting your winners run without a leash can turn them into losers. I'm not specifically advocating BBs but rather using it here for illustrative purposes.
Stay Classy ASF.
Just to say thank you MA, short and consive, argumented, 5 stars?
Confirmation of a trend can be a blessing & a curse
@Newt, I was with you right up to the paragraph above. Trend trading by its very nature means you will always get in a little late because of trend confirmation. Getting off the ride also requires confirmation that the trend has stalled or reversed. For this reason, the very best we can hope for is between the start & end of the trend, ( the meat of the trend). My terminology might not be sufficiently accurate in describing the area between the top & bottom of the trend, but I would believe most would get the analogy. Those who struggled to get the reference a picture was attached.
Newt, an expanded explanation from you would be helpful
So I can understand what you don’t understand. I’ve made 6 posts to explain a trading Strategy that has served me well. I’m thinking if trend trading is good enough for Nick Radge & Jon Boorman, it good enough for me - while acknowledging this style of trading is not for everyone.
Skate.
Just to say thank you MA, short and consive, argumented, 5 stars?
Thanks @Newt. I agree entirely with what you're saying about DD. For my trading style, I am definitely not chasing those infrequent many fold long term winners. As I mentioned before in this thread, I like to chase consistency of returns and this typically comes from taking a higher percentage of smaller (but consistent) per trade profits and forgoing those really big winners. Can't have your cake and eat itYes, more thanks from myself too MA for such a well written proposal on melding trend trading with a possible "take profit" exit based on Bollinger Bands. You've rightly pointed out that the shorter trade with the more aggressive exit may end up with a steeper gradient (of price versus time), but ultimately less total profit versus a longer term less aggressive exit. The best case scenario would presumably be using that earlier exit to quickly get into more "steeper gradient" short term trades.
Something I've noticed previously while playing with these sorts of exits is the potential to contain drawdown. We tend to think DD's occur as a result of market pullback (and of course they do), but a significant pullback at the end of a long trend for a couple of multi-bagger holdings can also put a big dent in your equity curve.
Another way of visualising this is via the Max Favourable Excursion distribution curve. Do you hold out for those infrequent but many-fold long term high winners (the >200% bar on the graph below), or be willing to give up some of those to get a smoother curve in the <200% winners portion of the graph. Everyone has to find their own preferred compromise in the end.
View attachment 122848
While I'm not live trading the BB example I posted about I am live trading the system with a different profit exit. Yes, the righthand side is where I like to be, but the other thing about my trading style is that I'm not comfortable with the very long hold times that are typical with many trend trading system. The thing I like about the profit exit is that it does give me drastically reduced hold times. Ouch on JINThanks MA. That shows the trade-offs and gains very clearly, and you're obviously much more comfortable trading "on the right hand side".
Giving back a huge chunk of open profits on JIN in late 2019 in one week. The market doesn't always reward those that hang in there for the long haul
View attachment 122853
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?