Dump it Here

[Skate]

What’s right is whatever works for you
Cutting losses has to be part of a solid trading plan, which includes applying a few different stop methodologies. I've never found "joy" in applying a "Take profit Stop" or by taking an early exit on profit targets, these limit your gains on a trade.

Picking one example (JIN)
Traders have a habit of picking one trade or individual trades rather than accepting that an "individual trade" is only one part of a system. It's important to find a suitable exit methodology for a system rather than individual positions. Applying an exit strategy because one or two positions "didn't play nice" is no reason to select one method over the other to drive the outcome.

When developing a strategy
Just having "sound risk management", & "position sizing" will be for naught if you don’t have the discipline to consistently execute your trading rules. Also, if you’re going to take one trade, take them all, a reference @ducati916 made recently. (In reference to trading your edge)

Summary
With "Trend Trading", you need to be able to accept trades that do not work. Find a strategy that’s right for you - then do your very best to stay disciplined, for better & for worse. Stay focused as trading is so uncertain. It’s a combination of doing the little things right that makes the difference between being consistently profitable or constantly losing over time.

Skate

 

[MovingAverage]

What’s right is whatever works for you
Cutting losses has to be part of a solid trading plan, which includes applying a few different stop methodologies. I've never found "joy" in applying a "Take profit Stop" or by taking an early exit on profit targets, these limit your gains on a trade.

Hi @Skate, I generally always agree with your observations, but don't my recent sim's suggest that taking an early exit does not necessarily result in limiting gains. If you're are talking an individual trade I'd agree with your proposition, but system traders tend not to think about individual trades (or should not think about individual trades) and should be focused more on overall system performance. My sims would suggest that there is potential to take early exits and yet come out in front overall.

 

[Skate]

Hi @Skate, I generally always agree with your observations, but don't my recent sim's suggest that taking an early exit does not necessarily result in limiting gains. If you're are talking an individual trade I'd agree with your proposition, but system traders tend not to think (or should not think about individual trades) about and should be focused more on overall system performance. My sims would suggest that there is potential to take early exits and yet come out in from front overall.

Early exits
I've spent endless hours trying to code a strategy to reduce the emotional stress of trading. Limiting drawdowns always come at a cost & I've never been able to successfully integrate & trade a "Take Profit Stop" with my style of trading. All my strategies have a "Take Profit Stop" & "90%" of my strategies includes a Bollinger Bands Volatility exit.

I'm fumbling to say
I'll exit a position early (before a trailing stop is hit) only when the ride is over on "reduced volatility". There is absolutely no way I would exit on a profit stop (% or $)

To make money trading
Don't focus on making money - focus on protecting what you have.

How do we protect what we have?
I don't believe our thinking or Newt's for that matter, is all that far apart. There might be different methodologies employed in protecting our capital. Trading should always be thinking about how to "protecting what we have". Espousing different views is how we learn - to experience a problem from another's perspective.

Skate.

 

[Skate]

Activating a "Take Profit Stop"
I can turn the "Take Profit Stop" on or off through the parameter dialogue. The "take profit stop" is simply an ATR (4) profit stop. I'll post the charts to display the effect a "Take Profit Stop" has on the exit.

# 1. The Switch Strategy without a "Take Profit Stop"
A picture says a thousand words.





#2. The Switch Strategy with a "Take Profit Stop" turned ON
A picture says a thousand words.







# 3. The Sphere Strategy without a "Take Profit Stop"
A picture says a thousand words.





#4. The Sphere Strategy with a "Take Profit Stop" turned ON
A picture says a thousand words.




Skate.

 

[qldfrog]

can I suggest another way to trade these and sort the issue? obviously a mater of loss endurance, and styel

It is not perfect but I have "sensitive" systems in, that they exit pretty quickly at the slightest scare:
imagine a wild deerin your garden, but being dumb they are as ready to jump on again.so the very same holding in a few ticks , hold periods are very low shortthey jump in out and with a proper scoring, they just reenter the big winners;
sure there is a cost in term of fees (but 20$ for a return trip is not much) and of course no BIG winners to boast of but a series of small winners ...on the same ticker

 

[Newt]

I should add for anyone following - please don't take my recent posts as evidence that I changed my system on the basis of one trade (JIN). The broader theme here that Skate and MA are teaching is that the exit(s) you choose for your system should ideally fit your personality and risk profile. The exit methodology is what ultimately determines the shape and distribution of your returns.

MA has shown that nicely with his MFE graphs.

Skate has once again shown the benefit in running a number of systems to diversify your trade management and exit styles. (and I love it when you show 2 or more graphs for a single stock too BTW Skate - always educational to see the differences and catch glimses of the underlying logic).


When it comes to "take profit" exits, my findings have been similar to what you describe Skate. I have however had some success switching on an more aggressive trailing stop after a trade triggers a certain profit point. This requires more complex (looping) code, and invariably becomes harder to validate in backtests due to the increased risk of curve fitting,. I do however believe it has shown some benefit in one system containing DD very late in the trend, or on parabolic trending stocks with significant open profit where the traditional stop can struggle to keep up.

 

[MovingAverage]

There is absolutely no way I would exit on a profit stop (% or $)


Skate.

You seem very passionate about that...which I respect.

 

[MovingAverage]

You seem very passionate about that...which I respect.

Curious...do you consider the BB exit I outlined a profit exit?

 

[Skate]

Curious...do you consider the BB exit I outlined a profit exit?

@MovingAverage that could be debated both ways. Using the upper Bollinger Band is a well tested exit strategy. I personally would use it because when price attacks the upper Band (no matter what deviation is used) indicates strength.

Skate.

 

[MovingAverage]

@MovingAverage that could be debated both ways. Using the upper Bollinger Band is a well tested exit strategy. I personally would use it because when price attacks the upper Band (no matter what deviation is used) indicates strength.

Skate.

We differ in opinion, because I don't see an attack on the upper BB as an indication of strength. My apologies if I have regurgitated what is a well tested exit strategy.

 

[Skate]

We differ in opinion, because I don't see an attack on the upper BB as an indication of strength. My apologies if I have regurgitated what is a well tested exit strategy.

The Bollinger Band Breakout strategy
The BBO Strategy uses the upper band to indicates the momentum & strength of the breakout.

Nick Radge BBO rules
1. Set the upper Bollinger Band to 3-standard deviations and the lower band to 1-standard deviation.
2. Set the moving average period to 100-days.
3. When the market closes above the upper band, buy on the following days open.
4. When the price closes below the lower band, exit the position on the next days open.

All it indicates
(a) You have shown a way to take advantage when the price breaks the upper Bollinger Band & (b) Nick has shown another. (One man's trash is another man's treasure). I should point out the BB is an indicator, how you use that indicator in your strategy is up to you.

Skate.

 

[qldfrog]

The Bollinger Band Breakout strategy
The BBO Strategy uses the upper band to indicates the momentum & strength of the breakout.

Nick Radge BBO rules
1. Set the upper Bollinger Band to 3-standard deviations and the lower band to 1-standard deviation.
2. Set the moving average period to 100-days.
3. When the market closes above the upper band, buy on the following days open.
4. When the price closes below the lower band, exit the position on the next days open.

All it indicates
(a) You have shown a way to take advantage when the price breaks the upper Bollinger Band & (b) Nick has shown another. (One man's trash is another man's treasure). I should point out the BB is an indicator, how you use that indicator in your strategy is up to you.

Skate.

Other school check breaking the 1 dev up band as a buy, down as sell..seems indeed a all you can menu

 

[willoneau]

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 red Sure, 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.

Great thought ,
It would be interesting to see a backtest with using the BB as entry signal with your standard exit for comparision.

 

[othmana86]

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 red Sure, 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.

Awesome post mate. I too have been contemplating this for some weeks. Great insight. Thanks

 

[Skate]

Success in trading doesn't come easy
For weekend viewing there are a series of videos, that will better equip you for the challenge. The tutorials cover topics such as:

1. Building trading strategies
2. Backtesting & optimization
3. Technical indicator
4. Trend and Volatility Filters
5. The dangers of over-fitting - Optimizing
6. Trade entries and exits
7. Strategy development methodologies
8. Managing risk
9. Portfolio diversification
10. Finding inspiration for new trading strategies
11. Trading Psychology
12. And much more...

Seven & a half minute (7:35)
That's all you need to spend to decide if watching a few YouTube videos can be beneficial to your trading.




Skate.

 

[Skate]

The 10-Minute Talk That EVERY Trader Needs to Hear
Watching this short "YouTube video" will be informative for new traders & a refresher for others. At times we all tend to forget the basic when it comes to trading. Keeping your trading plan simple really works.





Watching is easier than reading
I'm sure watching a few recommended videos will have a bigger impact on your trading than speed reading a bunch of my posts. The last series of posts remind me how healthy it is to get a perspective from others. Everyone posts from their perspective to give an alternative view.

Skate.

 

[Skate]

Aug 3, 2015
Trading reliably for profit is tough, but doing so for many years consistently requires drive with balance. We're fortunate to have so many mentors that share their time, experience and often very different trading/investing in this forum, but ultimately you have to find what works for yourself so you can sleep at night.

Nothing has changed since 2015
Newt nailed it when he said: "ultimately you have to find what works for yourself so you can sleep at night".

A good read
"Not being able to sleep at night" reminded me of an article where Jesse Livermore recants the trade-offs needed to reach your goals when trading.

True story
An earnest young newsman went up to Jesse Livermore one day and asked if he felt it was worthwhile to become a millionaire, considering all the strife and struggle one had to go through to get there.

Livermore responded that he liked money a lot, so it was certainly worthwhile to him.

But aren’t there nights when a stock trader can’t sleep? the reporter pursued. Is life worth living when you’re worried all the time?

“Well now, kid, I’ll tell you,” Livermore said. “Every occupation has its aches and pains. If you keep bees, you get stung. Me, I get worried. It’s either that or stay poor. If I’ve got a choice between worried and poor, I’ll take worried anytime.”

Livermore admitted that he worried about his speculations all the time, even in his sleep. But then he said that was all right by him. “It’s the way I want it,” he said. “I don’t think I’d enjoy life half as much if I always knew how rich I was going to be tomorrow.”

Skate.

 

[Skate]

Money & Sex
Money is like sex, you think of nothing else if you don’t have it & you think of other things when you do.

Discipline
The reason most people do not achieve their goals is that they lack discipline because they tend to give up "what they desire in the long term" for "what they desire now".

Bruce Lee once said
The successful warrior is the average man, with laser-like focus.

Skate.

 

[Skate]

What does it take to create a good trading strategy?
There is a lot that goes into creating any trading strategy. The benefit of building your own strategy is the ability to make sure it fits your trading psychology. To have a trading strategy that is successful you must be able to trade it with confidence, this is very important whether you build it or buy it.

There are literally millions of ways to create a trading strategy
The type of trading you'll feel most comfortable with (that you understand) is the strategy you need to build/buy. It is very important to spend a lot of time with this decision before you move to actually create a trading strategy. If you get this part of the equation right it will save you a lot of money & a few headaches.

It's trend trading for me
There are very few traders that can handle different types of trading strategies - so I suggest you pick one & trade it. The important point is to learn what type of strategies would work best for you. I suggest you read @peter2, @over9k, or @tech/a threads (also the "dump it here" thread) before you decide on the style that resonates most with you. Once you figure this part out then you are further along your trading journey than most.

Skate.

 

[Skate]

Understanding how the trend really works
Trends impact systems, so I thought I would share some information on how to get in & out of a trend.

Finding a system that works
Timing the entry as close to the turning point of a trend as possible is a hard task, so let’s not worry about doing this as it’s a complete waste of time. It really doesn't matter much what you are using for entries as long as you are entering in the direction of the trend. Any trend indicator will work as they mostly do the same job.

More to follow.

Skate.