I have been developing a trend-following system, but I am struggling to find a good exit. In other words, I exit too late, and take large losses towards the end of the trade. Overall, it seems like a profitable system, however, I need to find an optimal exit. HAs anyone got any recommendations? Also, I read "The Intelligent Investor" and I find that the author is very skeptical of those who "follow the market". Does trend-following work?
Perhaps this may not relate to you, but I struggled with exiting based on signs I had stayed too long (already beginning to suffer), and instead altered my trading to exit before such event and when profitable. This is working for me, but I do not trade your instruments, so comparing apples to oranges.
I second your request. Without having a much clearer idea as to just what Oadmani is doing, how can one offer truly pertinent/helpful ideas/suggestions? I too developed a trend-following system, but finding an exit is a relatively elementary matter... I simply do so as soon as the trend reverses direction.
The trick is to scale in when you are right, so you have kind of trailing stop and then you get your position much larger when you win. That way I would say it gets natural for you to take some profits home when your position gets too large over time. So in the end late exit could be solved with that. The key is to have smaller stops and then increasing your position when you win. Otherwise trend-following is not a really good strategy speaking of sharpe ratios well below 2 if you do not scale-in.
Add a moving average indicator on your chart. 50, 100, 200 period are quite common. Exit when the price crosses below the moving average.
I trade stocks and ETFs holding seconds to about 7 minutes. Like most, I've tried a good many trend following systems. (1) You might like the indicator "TTM_Trend" which will turn your candles / bars / line charts blue for up trend and red for down. I've used it with some success but currently do not. Try it, you could do worse. Exit when you get a red closed candle. (2) The indicator "Awesome Oscillator" looks better than most. It's a lower indicator. Place it below your chart and see if it helps you. I no longer use it either. (3) Then there is an endless combination of MA settings that i have tried and you will get many recommendations on which MA or MA combinations to use. Most often you hear the MA 50 mentioned and will advised to not trade when it's sloping down. It never served me well. For a time i ran a MA 16 and price had to be above the MA 16 for me to buy. I think the value of a MA or MA combination varies with the instrument you trade. Even among stocks, some MAs seem to work better than others. On a 1 minute chart i have ran a MA 1 and MA5 combo and sell and never buy if MA1 is below MA5. That might work tolerably well for you. (4) These days i don't use any indicators including MAs. I can see the trend at a glance. I predetermine an exit (max loss exit) before i buy and mentally adjust it as price rises (when it rises). That's about as good as it gets for a simple guy like me. Try to keep your winners twice as large as your losers. Hope it helps!
Wow,Trend following and "The Intelligent Investor".... I'm not saying you can't combine the methods,but they are very different approaches... Ben Graham was the pioneer of Vaue Investing. Are you a deep value guy??