tech/a,
Some of this discussion may be more approprite in a thread on system design rather than risk. Happy to discuss design aspects with you anytime, here or on reef.
tech/a said:
Yes and the resounding result was do not set a profit target or trailing stop (of course you could and results were positive however far below the finally accepted methods results) and give the exit plenty of room. The balance comes in the length of the EMA,and thats only to smooth the curve.
If I can clarify what you're saying here. Is it that as long as an identified candidate stock meets the criteria you will enter trade based solely on positive expectancy?
Which means for the sake of an example if the PE is = 0.7, which means that probability of a loss is 0.3 you take the trade.
If your trade is correct then your profit could be anywhere from breakeven to whatever the market will give you, less what you give back + trading costs, depending on the level at which your exit is hit.
This where we move into the aspect of real profit as opposed to unrealised profit.
If I was looking at a worst case scenario this could even be a negative return.
Please note: that I have deliberately ignored your initial stop loss for the sake of this clarification.
If I recall correctly your exit is based on a 180 period EMA, which is a slow moving, lagging, curve fitting indicator.
Having said the above, I know that you have been doing/done work on looking at exit strategies, so accept the above as an example and not a criticism.
Maybe so with a shorter term methodology such as Radges.However longer term your resultant execution will only at best have a 50/50 result,in correctness. One wrong could mean the opportunity of 300% or more is missed.
I understand what you are saying here, but would contend that this is based on the scope of testing and universe of tests that you have conducted and may not be totally valid/accurate in all cases. There is always a risk of giving back profits or missing opportunites, as per you comment below related to available capital.
There is also an assumption in the above that systems, such as T/T will always pick the best cases. I would contend that this sis a questionable assumption, especially if your trades are solely based on postive expectancy. Even using 'bang for buck' won't provide this level of assurance.
The question of available capital then comes into play.
Say I sell CTX as it looked weak at $8 and I bought Something else.
Next thing at $9.15 CTX is triggered again and there is no available funds to trade,Im fully committed.
I'm sure you see my point,diving in and out of stocks is a habit of discretionary traders who bleed to death and suffer more emotional swings than Melanie Griffiths.
I see your point and I am very aware of all the great work you have done over the years and your early days on stock central and reef. Therefore, I would never discount your comments without due consideration, but I will not necessarily always agree with you.
Available capital will always be a factor. How many trades could you have taken that you didn't that may have been more profitable than the ones siting in you current portfolio.
Yes, you or I could have sold CTX at $8, but around that time (sorry I haven't checked the Charts) from memory I could have bought into MBL which was trading in $22-30 range and subsequently went to around $72. Mate we could go round in circles on this particular point.
While it may sound like diving in or out of stops, it was not meant to come across that way. But, systems such as T/T have no intelligence and are actually a buy and hold style approach and there is no scope for looking/taking better better opportunities. There is no obvious concept of risk/award, neither does it or the methodology appear to consider valid situations where a stock may go into a ranging or consolidation pattern. I think that we both are well aware that stocks can go either way depending how they come out of the any pattern.
I really don't need to use or consider discretionary techniques here, as an understanding of market behaviour can go a long way to assisting and building build a reliable system. Ignorance of market behaviour can be a limiting factor from a system design perspective.
If your talking of multiple chart based discretionary exits then consistant profit will be very difficult,as psychological factors will come into play.
NO, NO, NO, NO, not interested in this approach and agree with you on the psychological factors.
Cheers.