How to exit? Questions about exit strategies

[MYLouis]

Bro, I agree with mastergunner99 here. If those are your stats then that’s more than sufficient. Maybe look closer at your losing trades and see if you can filter out a few more bad ones. Get your win rate up to 60% and you have found your grail. Best of luck

Yup, I’ll continue trying to filter out some bad trades or at least to cut losses short. I have not found an effective way to cut loss, neither to let profit run.

What I worried about my system is the edge can be seemingly non-existent for a very long period, and it will be psychologically hard to handle, not to mention financially. Secondly is about back-test fallacy, the result of back-test from past 4 years not necessarily ensure success for the future. The following years may turn my edge upside down.

Therefore, I’ll not consider my system reliable until I found a way to improve it. I knew that one trading system works well in one kind of market condition may work badly on others, but it looks like I got no choice but to include all those nightmare periods in my trading because I’m not fortune teller who can predict future market condition…

[_bob]

Yup, I’ll continue trying to filter out some bad trades or at least to cut losses short. I have not found an effective way to cut loss, neither to let profit run.

What I worried about my system is the edge can be seemingly non-existent for a very long period, and it will be psychologically hard to handle, not to mention financially. Secondly is about back-test fallacy, the result of back-test from past 4 years not necessarily ensure success for the future. The following years may turn my edge upside down.

Therefore, I’ll not consider my system reliable until I found a way to improve it. I knew that one trading system works well in one kind of market condition may work badly on others, but it looks like I got no choice but to include all those nightmare periods in my trading because I’m not fortune teller who can predict future market condition…

Are you trading live with your plan. If not the only way foward is to give it a go. Open a micro account and see how you go. You will be pleasantly surprise how quickly your trading will improve and that with give you the confidence you need. Best of luck

[MYLouis]

Are you trading live with your plan. If not the only way foward is to give it a go. Open a micro account and see how you go. You will be pleasantly surprise how quickly your trading will improve and that with give you the confidence you need. Best of luck

Thanks for the wishes, bro.

I’m trading live for about 17 trades on this system now, so far so good. All my trades is on usdjpy. For some reason the same system gives negative result on eurusd.

According to my back-test, the worst nightmare period will give highest consecutive losses of 7 times, highest draw down for about 10x risk per trade. I’m trading with constant worry about scary nightmare, or worse, the existence of my edge, because it shouldn’t rely solely on faith.

[d-pip]

Thanks for the wishes, bro.

I’m trading live for about 17 trades on this system now, so far so good. All my trades is on usdjpy. For some reason the same system gives negative result on eurusd.

According to my back-test, the worst nightmare period will give highest consecutive losses of 7 times, highest draw down for about 10x risk per trade. I’m trading with constant worry about scary nightmare, or worse, the existence of my edge, because it shouldn’t rely solely on faith.

MYLouis,

I might be the odd man out here but based on my personal experience I find trading systems, rigid trading plans and back-testing are overrated and if not flexible enough can be harmful. Here are two of my favorite quotes from a Daryl Guppy interview.

[I]“The important point is not finding a system or designing a system, [B]what is important is that you have to create an approach that’s appropriate for the current market conditions.”[/B]

“There’s always a challenge to [B]adapt and adjust your trading style or approaches to suit the market conditions.”[/I][/B]

I agree with Mr Guppy, IMO it’s all about understanding and trading the “current market conditions” not systems, rigid trading plans and back-tested results from 5 years ago.

For example, let’s go back and take a look at the daily EU & UJ charts and compare June & July 2013 to June & July 2014. We’ll find the 40-day ATRs of J&J 2013 to be approximately twice of J&J 2014.

Also let’s look at the price movement & trend. Beginning of June 2013 EU open at approximately the 1.3000 level. By the 18th & 19th EU moved 400 pips higher hitting the 1.3400 level. Then by July 9th dropped 650 pips to the 1.2755 level. And closed the month of July back up another 500 pips to around 1.3250.

Now let’s look at EU for June & July to date 2014, been as high as 1.3700 and low as 1.3490. For the most part stuck in a trendless 210 pip range v J&J 2013’s high to low 650 pip move with strong & obvious multi-day trends.

Does anyone really think that a system and rigid trading plan that was profitable with EU during J&J 2013 would produce anywhere near similar results trading EU J&J 2014? Cause if you have one, I’d love to know about it.

Here’s youtube link to the interview with Daryl Guppy by David Jenyens.
Daryl Guppy Talks Trading Tools - p 1/7 - YouTube

.

[peterma]

Yep, Guppy has a great sense of the market, his view of the ‘investor’ and his attempt to understand the investors’ view is vital to understanding market direction.

Many, if not all, of the older traders understood this, perhaps most of all Wyckoff.

When I saw D-pip’s post Wyckoff immediately sprung to mind, and this quote from his 1925 book.

The following quote was in his chapter “First Lessons”, I have not altered a word:

“In and out of many brokerage offices there hustled wild-eyed individuals with charts under their arms, who would hold forth at length on double tops and bottoms and show you how and why the “big fellows” were doing this or that with their favourite stocks.
Yet none of them seemed to have much money.
Possibly it was because they followed a strict set of rules and did not use much intelligence.
It seems that the charts told them exactly what to do!”

[MYLouis]

Here is my result of testing one cut loss strategy, exit position earlier when the odds stacked against me as indicated by the strategy.

When successful cut loss (true)= it cut the loss of the trade by half on average
when failed (false) = it makes a winning trade to become a losing trade, lose by average of half initial risk.

Based on a sample data of 119 trades, it signalled 47 trades to exit earlier, which include 31 cut loss(true), and 16 cut profit(false).

The strategy seems to be quite effective, being true for about 65-75% of the time to cut losses short, but after doing a little maths:

Setting the initial risk to be 2%.

losses avoided= 31 trades * 1 %= 31% loss avoided

losses cause by false cut: 17 true signal being cut into loss= 17 * 1%(average loss)+ 17*2% (gain if din’t cut loss)
= 51% total loss!! Note that my initial entry setup always used a 2% risk with a 2% profit target.

Looks like this strategy failed mathematically, I’ll have to keep on working hard in order to come out with a better exit strategy either to cut loss, or let profit run, or better still, both.

[_bob]

Here is my result of testing one cut loss strategy, exit position earlier when the odds stacked against me as indicated by the strategy.

When successful cut loss (true)= it cut the loss of the trade by half on average
when failed (false) = it makes a winning trade to become a losing trade, lose by average of half initial risk.

Based on a sample data of 119 trades, it signalled 47 trades to exit earlier, which include 31 cut loss(true), and 16 cut profit(false).

The strategy seems to be quite effective, being true for about 65-75% of the time to cut losses short, but after doing a little maths:

Setting the initial risk to be 2%.

losses avoided= 31 trades * 1 %= 31% loss avoided

losses cause by false cut: 17 true signal being cut into loss= 17 * 1%(average loss)+ 17*2% (gain if din’t cut loss)
= 51% total loss!! Note that my initial entry setup always used a 2% risk with a 2% profit target.

Looks like this strategy failed mathematically, I’ll have to keep on working hard in order to come out with a better exit strategy either to cut loss, or let profit run, or better still, both.

See now your messing with your strategy bro. Ask yourself this, whats the underlying market bias at the time of your trades? Were you trading with or against that bias. And do check the relationships to news events and their influence. Your strategy sounds solid enough

[Jcandle]

I think you have the saying " cut losses short and let profits run" misunderstood. To be clear the saying means that when you put on a trade if it doesn’t go your way instantly cut that loss because we don’t enter a trade to lose we enter a trade to win. As for letting profits run it simply means that once you’ve entered a trade and it starts to go in your direction let it run to its target. As for an exit strategy you need to use your tools as for me i use Fibonacci and Elliot wave structure interpretation to find a good exit.

[MYLouis]

I think you have the saying " cut losses short and let profits run" misunderstood. To be clear the saying means that when you put on a trade if it doesn’t go your way instantly cut that loss because we don’t enter a trade to lose we enter a trade to win. As for letting profits run it simply means that once you’ve entered a trade and it starts to go in your direction let it run to its target. As for an exit strategy you need to use your tools as for me i use Fibonacci and Elliot wave structure interpretation to find a good exit.

To me, I think it is the most practical way of applying the idea of cutting loss short and let profit run. The underlying rationale is stay with the trend as long as possible while cutting losses when the odds are no longer favourable for that position.

Becoming a successful trader involves:

1. Developing both entry setup and exit strategy which gives you an edge over the market. ( very underrated, it is by far most important in trading success, once you have it, it’ll make others problem much easier to solve)

2. Being able to manage your trades safely and systematically. Keep a low risk, plan for the worst to come, have the mental toughness to sustain through the nightmare and continue trading until market is favourable to your system again.

3. Enhance your trading, by improving exit ( decide when to let profit run/ scaling in), cut loss( include not entering not so ideal trades), which often rely on personal discretion and can be really hard to learn.

Lately I am working on “let profit run” part on my system, under certain condition I might want to raise my profit target. Further research and statistical support needed, before that not going to apply to my current trading.

Jcanle, how’s it for you to set a profit target? some kind of fibo extension? do you look for 1-1, 1-2 because you can essentially choose like 23.6 , 38.2, or 61.8, there are a lot of option, and very often I can’t see it as better than a fixed 1-1.

As mentioned in “Technical Analysis Explained” by Martin J. Pring, there are no existing method to predict the exact magnitude of the trend. So I set my stop at recent support level and target at 1-1 of my stop, regardless of the current resistant level. I find that’s the easiest way for me to achieve positive expectancy on my trading.

[Jcandle]

Jcanle, how’s it for you to set a profit target? some kind of fibo extension? do you look for 1-1, 1-2 because you can essentially choose like 23.6 , 38.2, or 61.8, there are a lot of option, and very often I can’t see it as better than a fixed 1-1.

Yes i use a fib extension’s but i also use wave structure interpretation which has patterns within themselves that have certain terminal points that coincide with the fib extension and the bigger picture is painted according to the out come of the probabilities for that wave sequence.

[_bob]

Yes i use a fib extension’s but i also use wave structure interpretation which has patterns within themselves that have certain terminal points that coincide with the fib extension and the bigger picture is painted according to the out come of the probabilities for that wave sequence.

What a load off who ha. Hey bro, do you think your smart money cares about fib lines. My experience the only lines the real players respect are support n resistance. Forex is not about us retail traders. They have no time for us. Trade what you see not what you want to see. This is a major mistake made by newbies.

[Nebula9]

[QUOTE=“bobbillbrowne;644169”] What a load off who ha. Hey bro, do you think your smart money cares about fib lines. My experience the only lines the real players respect are support n resistance. Forex is not about us retail traders. They have no time for us. Trade what you see not what you want to see. This is a major mistake made by newbies.[/QUOTE] Trade what you see and not what you want to see!! I quote that once more. Wait I think I’ll write that down and stick it on my laptop! Wise words!

[_bob]

My

Trade what you see and not what you want to see!! I quote that once more. Wait I think I’ll write that down and stick it on my laptop! Wise words!

Not my words but bro. I am only quoting what wiser people than me have said on this forum but its a definite rule not to be broken IMHO

[Jcandle]

What a load off who ha. Hey bro, do you think your smart money cares about fib lines. My experience the only lines the real players respect are support n resistance. Forex is not about us retail traders. They have no time for us. Trade what you see not what you want to see. This is a major mistake made by newbies.

Do you know that you don’t have to type out “bro” when you’re talking yourself through what it is you would like to say?

[MYLouis]

Same as entry, there are many exit strategies out there. There’re no right or wrong, what matters is does it suits your personal style and can you use it efficiently. For me, i couldn’t use most exit strategies out there, except of my own.

I’m still keen to learn more about exit, in order to improve overall profitability.

[MYLouis]

Yes i use a fib extension’s but i also use wave structure interpretation which has patterns within themselves that have certain terminal points that coincide with the fib extension and the bigger picture is painted according to the out come of the probabilities for that wave sequence.

Jcandle,

I have no knowledge to wave principle, but I believe what you are saying is analyse the past structure and use fibo to project some resistance and hence profit target. This kind of exit is too hard for me, it gives many possible options, and rely heavily on personal discretion to turn it into a success.

[Jcandle]

Jcandle,

I have no knowledge to wave principle, but I believe what you are saying is analyse the past structure and use fibo to project some resistance and hence profit target. This kind of exit is too hard for me, it gives many possible options, and rely heavily on personal discretion to turn it into a success.

Yes you sorta have the right idea. as for personal discretion whenever you are met with having to make a decision you will meet with many possibilities. Thinking in probabilities is essential in trading as well as Chess.

[anon5370623]

Jcandle,

I have no knowledge to wave principle, but I believe what you are saying is analyse the past structure and use fibo to project some resistance and hence profit target. This kind of exit is too hard for me, it gives many possible options, and rely heavily on personal discretion to turn it into a success.

Using Fibo to define resistance levels?? What for you make the simple process complicated? Resistance levels are obvious points on any time frame. Instead of using Fibo’s in that way it can be used for measuring strength of trend comparing and deducing average value.

[_bob]

Just going back to your original post. Without knowing your trading style, plan or goals its hard to point you in the right direction.
Here are a few of my personal views on some of the comments I have read so far.

First if it ain’t broke don’t fix it. At a 56% win rate with RR at 1:1. you already have a solid strategy. Lets not change that. Rather lets try and figure out why there are losing trades. Example, if you trade with a smallish SL say 20 or 30 pips and your trade is open at the time of a major news event then there is every chance it will be stopped. If you find this is occurring then maybe a good exit strategy could be to simply close the trade prior to the news event.

Letting profits run, translated, greed. Cutting your loses short, translation, fear. Two powerful emotions that will ruin any traders account. By default when you set your SL and TP you are saying this is how far I will let my profit run and this is where I will accept loses. My belief is this saying was invented by marketers. Like a casino, brokers know that the longer they keep you in the trade the greater your chance is of losing that trade is. Have faith in your system

Fib lines and retracements. Again another system exploited by marketers. Trying to predict how far the market will move is another newbie mistake. No-one knows. How many have been stopped out by using a fib level only to then watch the market move back in their direction or miss their TP by one pip. Plenty. Drawing fib levels on the chart is such a subjective exercise and as I said prior we tend to draw them so we can see what we want to see, therefor get it wrong. One final thought, the golden ratio and Fibonacci sequence is a phenomenon of nature not man. The Forex market is not natural.

Is your system a trend following system. Trend is just another term for market bias. Are your losing trades, traded against the trend. Remember that the market in motion will continue in that motion until such time as a significant event occurs to reverse that motion. That significant event will be a fundamental event and only the major players can influence that reversal. There is not a technical indicator out there that can predict this.

So in summary my view is that your time is better spent on post trade analysis to understand why your trades lose rather than developing different exit strategies. Hope this helps

[MYLouis]

yes, I agree that “if it ain’t broke don’t fix it.”

I have been very cautious and not making any modification to my trading system easily, but still, continuous effort is putting in finding ways for improvement. Any changes will have to supported by sufficient historical data to prove the effectiveness to enhance profitability.

As I stated last post, there is no existing method to predict the magnitude of trend. Thus when my system indicates that a trend is starting, I set my profit target at 1-1 of the stop loss, which is the minimum required to achieve the positive expectancy. But it sometimes make me feeling uneasy because none of my books teaches to set profit target this way.

1-2 and 1-3 profit target didn’t work according to backtest. As for setting profit target at resistant level, the resistant may be too significant and make the price reverse before hitting your target. 1-1 profit target is the most profitable exit strategy by far, no changes will be made unless I can convince myself. ( I’m very hard to be convinced)

Figuring out why some trades failed is not easy, it may due to unemployment or non-farm payroll released, but for most of the time, it just failed. Still, sustain trough the worse period, sooner or later the edge will get back close to expected value. Another thing is I couldn’t really measure the effect of big news on my trading.

I get a pretty decent result from trading this method (ie significantly better than expected result). I trade only hourly charts on usdjpy , except sleeping I’ll check my charts every hour for almost every waking hours.

bobbillbrowne,

There is a major believe that one should follow the main trend during trading. My question is how to determine the validity of the above statement. For example I put a ma on daily chart, go long only when price is above daily ma and my signals agree, vice versa. From my research, the chances for both direction to succeed is about the same, when you think of reducing trading frequency by 50% you have to think twice. This will reduce your trading income ALOT.

I have develop a reliable trading system, it’s been profitable since I put this method in live, but I’ll not stop improving it.(or at least trying). I have my focus on exit strategies now, although no changes will be made any time soon, but I believe it plays an important role to enhance my overall trading success.