Exit Strategies

[whitta27]

hey anyone and everyone,

just stimulating some discussion.

attached is a 5min chart of spi today

it shows entry and exit.

i think trade worked out to be 20 points profit

in hindsight if i had of held the trade i would have been much better off.

does anyone have any reasoning on what to do in these situations
and in the chart shown how would have you determined when to exit, or where to place your stop loss.

thanks whitta

 

[MichaelD]

in hindsight if i had of held the trade i would have been much better off.

does anyone have any reasoning on what to do in these situations
and in the chart shown how would have you determined when to exit, or where to place your stop loss.

1. Apply the hindsight indicator to each and every chart that you trade from now on. It's 100% guaranteed.

2. Where does your written down backtested positive expectancy trading plan tell you to exit/place your stop loss?

 

[Sean K]

i think trade worked out to be 20 points profit

does anyone have any reasoning on what to do in these situations

Take the money to the pub and enjoy.

Or, make another trade....

 

[whitta27]

my testing showed a strike rate of 46% with a average win to average loss ratio of 2.5 - it was tested for a month with 70 sample trades

my exit signal was a close the wrong side of an immediate trend or for stocks moving away from trend in a hurry the parabolic sar as a trailing stop

i know the system works.

i'm just looking for methods of working the winners harder.

thanks for your responses

 

[tech/a]

Whitta.

The answer generally lies in volume and range.

Hints for genuine tops.

(1) A wide range bar which pulls back below 50% of its range on high volume.
(2) Lack luster volume at a consolidation of bars after a trend followed by a high volume reversal bar.

Hints for a trend pause

(1) A reversal from a top with light volume
(2) (1) followed by a high volume bar which has little range (Stopping volume).

Note all bars have a shelf life of the following 3 bars.
Take the case of your reversal,it looked like a genuine reversal but the 3 bars following the wide range reversal told another story!

You would benifit greatly from learning VSA analysis. Leaders in the field are here. http://www.tradeguider.com/

If I get a chance today I will post some realtime examples using a 5 min chart.
Will be on stocks not the SPI.

i'm just looking for methods of working the winners harder.

They are there.

 

[cuttlefish]

in hindsight if i had of held the trade i would have been much better off.

does anyone have any reasoning on what to do in these situations
and in the chart shown how would have you determined when to exit, or where to place your stop loss.

I'm no trader but thats never stopped me offering an opinion :.

My view is that it was a well taken entry and exit and should have been left as a discreet trade while possibly looking for new entries further forward. Had you continued the trade you would likely have been stopped out before the big end of day move anyway. Its also always important to remember that whilst following it intraday - until the bar has actually completed you don't konw what its going to be - so its not till the next bar is forming that you know what the last bar is (easy to forget when looking at the chart in hindsight).

The breakout I've indicated may have been a new entry but its pretty likely it would have been stopped out before getting to the end of the day imo.

So you've probably done just the right thing.

I've attached an annotated chart - read the comments in numerical order and it will hopefully make sense.

Just one view of course but sort of reinforces that these things are easier to see in hindsight.

 

[Chorlton]

Hello,

Tech/A makes some good points about spotting the clues are to whether a trend will continue or not.

However, its worth noting that your stop location choice meant not potentially giving back much profit if the trade turned sour which suggests your "system/rules" result in a low MaxDD (if you continuely follow this approach), which given the current volatile climate doen't seem like a bad idea IMO

 

[Boggo]

One point that I think is being overlooked here is the bigger picture, what are the 15 min and 30 min charts doing, sometimes (often) the short term can give you a signal but the larger time frame will give you the entry (and stop).

My

 

[Wysiwyg]

If you don`t ping the turn then you don`t ping the turn.


With cuttlefish, no. 3 would not have to be a loss by moving the stop to break even (missed the turn) or better.

 

[MRC & Co]

2. Where does your written down backtested positive expectancy trading plan tell you to exit/place your stop loss?

Funny to say, I know at least 50 professional discretionary traders in Australia who don't backtest ever.

 

[cuttlefish]

hey anyone and everyone,

just stimulating some discussion.

attached is a 5min chart of spi today

I guess another possible re-entry (in hindsight) after being initially stopped out would have been the breakout of the initial resistance line that you identified (that helped to reinforce your initial exit decision).

So a bit past the '4' on my chart it broke out through that initial resistance line you drew. That resistance line then acted as fairly textbook support from then on. (all easy in hindsight as already discussed).

 

[professor_frink]

Hi whitta,

Nice entry on the trade

Generally I find that waiting for a trendline break can leave you open to giving back quite a bit of profit on these types of timeframes, so I generally don't use them FWIW. Personally prefer to watch for prior pivot levels, combined with failures/shakeouts and add scaling to the exits

Instead of focusing on finding a better signal(you'll have no shortage of comments in that area), why not focus on the way you manage the trade?

I quite like the SR level you highlighted from the morning's opening range. One alternative here is to trade around your initial position by scaling out of half the position on the failure signal at the res area, then move the stop up to BE. This helps to extract money if the move ultimately fails, and leaves the potential for further profit if it breaks suddenly in your favour. What that allows you to do is to sit down and wait for the trade to develop further with the benefit of being in a no lose situation. What you can do from there is add back into the position later on if price forms a higher low and breaks out - you can move the initial stop from the first position up to below the pivot, then turn around and look to scale out an initial part of the 2nd at another SR area that has developed(in this case it would have been the same SR level from initial move up that you were on). Rinse, repeat until there is no reason for you to be in the trade anymore.

 

[wildthing]

Penny's worth
If a 2 Count back line was used you may still have been in the trade?
I probably wouldnt be patient enough and great in retrospect!
Cheers

 

[whitta27]

thank you for all that replied.

some excellent responses.

tech a - i just watched a you tube video by the vsa guy - very interesting
i sent away for the free ebook - which i look forward to reading

unfortunately my cfd provider doesn't have any volume accompanying my charts.

does anyone know where you can find this?

i choose not to bog myself down with indicators
i have the rsi and macd histogram up and the parabolic sar on the chart
focuing on the highs and lows form across differnt time scales i find very beneficial however volume added to this would probably turn my analysis from 2D to 3D

once again thanks

 

[MichaelD]

my testing showed a strike rate of 46% with a average win to average loss ratio of 2.5 - it was tested for a month with 70 sample trades

my exit signal was a close the wrong side of an immediate trend or for stocks moving away from trend in a hurry the parabolic sar as a trailing stop

i know the system works.

i'm just looking for methods of working the winners harder.

Good to see at least some testing work has been done, albeit only with a month's worth of data.

Here's what I do when I think a change is indicated to any of my systems.

1. Backtest both the existing system (again) and the proposed new system, comparing the results. This can be quite laborious for intraday systems.

2. If the proposed change seems to be helpful, I'll continue to trade the existing system for 30-100 trades and paper trade the new system alongside it.

3. If at the end of the walkforward testing the change is an improvement, I will incorporate it into my trading.

Most of my ideas based on a single example trade turn out to be bad ideas overall and are rejected.

Beware of the "one that got away" mentality.

 

[Chorlton]

Penny's worth
If a 2 Count back line was used you may still have been in the trade?
I probably wouldnt be patient enough and great in retrospect!
Cheers

WildThing,

Can you elaborate on the 2 count back line principle please?

Just interested...

 

[BBand]

Hi Whitta,
Your entry was pretty smart (James 12?), and your exit was also smart(triangle/trendline). The resistance line was strong - the last 5 bars prior to your exit bar tried hard to break this resistance but were unsuccessful - 4 tails managed to break above - but all the closes were below

In this market, there is not much wrong in just trading the move (for whichever timeframe you are trading from)

If the market is not going up - then it will either go sideways - in this case it could break up or down, why gamble?, or it could go down - in which case you will not be interested. (unless you can trade short)

Cuttlefish pretty much summed it up.

Well done

Peter

PS I'm with you regarding back testing - I'm just interested in how my setup performs in the current market conditions
If I was a long term trader - then it would be a different story, I would want to know how it performed across a variety of market conditions

 

[Panacea]

WildThing,

Can you elaborate on the 2 count back line principle please?

Just interested...

Chorlton, I think WildThing is referring to a trailing stop method that Daryl Guppy writes about in one of his books. (WildThing pls correct me if i'm wrong??)

It's a trend following stop that is recalculated each time the price makes a new high in a trend.

I don't think a CBL stop would have made for a better exit in this case, tho' (see below).

 

[Chorlton]

Chorlton, I think WildThing is referring to a trailing stop method that Daryl Guppy writes about in one of his books. (WildThing pls correct me if i'm wrong??)

It's a trend following stop that is recalculated each time the price makes a new high in a trend.

I don't think a CBL stop would have made for a better exit in this case, tho' (see below).

Panacea,

Thanks for the explanation. I was interested in the rules as I couldn't work them out based on the lines originally drawn on the chart. I can now google Guppy and take a closer look, just for interest...

Cheers again........

 

[The Edge]

Thursday 6 November 2008

whitta:

You did not address your entry at all, which may
assist in determining an exit strategy. The point
of entry appears quite advantageous. How did
you arrive at that point in time?

If it were a lucky shot, without much forethought,
then planning an exit becomes more critical for
there was no plan from the outset.

The most important consideration is to always
determine what is the trend within the time frame
in which you are engaging. Further, it is also
important to know what the larger time frame trends
are, as well. This enables you to develop a context
or perspective for any trade.

Note, there is no effort to employ mechanical means,
RSi, MA, oscillators, et al, but to rely more upon the
developing market activity, the most current and
relaible information available. For this reason, knowing
the trend is immensely helpful.

If your entry were due some recognized support
area, it then becomes incumbent to determine if
there is a definable uptrend. If so, you then manage
the position accordingly.

The use of stops is as much an art as is trading,
though most rely upon mechanical means or fear of
giving back paper profits.

Your first stop would have to have been the low from
which your position proceeds. As the market
develops, there is a small correction prior to the
initial runnup from which you exited. Other than
money, there is no market-related reason to exit the
trade.

The bottom of the correction, from which you exited
early, is about a half-way retracement that holds, a
positive indication of strength, and a reason for
knowing the trend, for you can expect some corrections,
and when within the trend, these corrections will hold.

It is a hindsight consideration, but you can see how the
market activity was in your favor, and carry this
knowledge into future trades.

Also, you now have higher highs and lower lows
developing within the confines of the identified market
behavior, so far. It requires patience to let the
market develop. Focus on the activity and not the
ebb and flow of possible profits and how much the
market may be taking back.

Focusing on profit/loss potential distracts you from
watching the story of market activity unfold. You
then view each wiggle as potentially taking back
some of your profit. That form of fear keeps your
attention on those moves that could hurt you, and
you then fail to see how the market is actually moving
favorably for you.

The third lower low, just prior to "13" on the chart,
shows you could now move your initial stop to just
under the second lower low, or under this latest
low. Now you are managing your stop based upon
market provided information.

You get the point of the drill. There are many other
indications for moving, or not moving your stop as
this price developed to the upside, but this is a start.

Cheers!