Entrance and Exits

Everyone knows that getting in the market is a lot easier than deciding when to get out -- so I wanted to start a thread with some ideas and throw them out and see what other people think.

In my opinion, a good exit should be a good entry for a position of the opposite nature. If you enter LONG and you exit, shouldn't you be so confident that your exit is correct that you could just as easily take an immediately opposite position?

Does anyone trade like this? Does anyone not only put an order in to exit, but put an order in for twice the exit amount to immediately enter the market with an opposite position?

Or, do you believe the perfect exit isn't necessarily the perfect entrance for an opposite position? If you feel this way, then what would be the difference? Your exit would indicate that you believe the upward potential is at an end and that the market will now go the opposite direction.

Thanks for sharing your views.

aphie

 

It's very hard to know the ultimate exit price. You always want to wait for confirmations. My advice is not too be too greedy. You get one point, take it. It may be going through the roof but you already have your point, haven't you? Also I find it clearer to have one point of view with the stock. Either you're right or wrong. The stock will rarely go straight up or down. There always are pullback and rebound. What if you were long and the stock pull backs - you exit your long position with a profit and short it. The stock continues it uptrend. You give back your profit. Unless you realize if was only a pullback.... But that's too many ifs.

 

That is a good point -- but I often hear the expression, "Cut your losses short and let your profits run." However, the system I use to trade ES cuts my profits at +2 points and allows a 5 point stop loss with a success ration of 4 to 1 (4 wins per 1 loss). Then again, I can't do position management with just one contract. When and if I get to the level of two contracts, I will take a 1.5 point ES gain, move my other contract up to +.25 break-even and then raise the stop loss order based on the moving average of the lower bounds of the bars.

aphie

 

aphie,
I'm still new, so discount my opinion heavily.
My answer to your first question is yes. To me, if it is a good enough entry for the opposite position, it is definitely MUST exit if I'm still in the previous position. A good exit is not necessarily good enough to enter the opposite position. The reason, which is to your second question, is that a rational trader is risk averse. I know that you are familiar with calculus, so if you set up objective function which satisfies risk aversion, then the answer is obvious, that is, the difference is really the risk.

 

Newbies provide the freshest perspectives from my observations. Thanks for your reply. I agree with you that it is all about risk management.

aphie

 

I use a self directed floating stop. (I guess that's as good of a name as any). It changes in direct proportion to the daily range of the stock or EFT I'm trading.

Lets say the the stock price is 100 and has a minimum daily range of 1.50. (That's pretty easy to figure just go back for a year and take out the 8 smallest ranges and use the 9th). Now, I'm reasonably assured the stock is going to make that range. If I enter at 100 and the stock goes straight up to 101.50 I get to make the range or 1.50. If I enter at 100 the stock goes down to 99.70 (a .30 cent loss) then goes straight up I will reset my stop to the low + the daily range. In this case 1.20. If the stock goes down by1/3 of the range in this case .50 I am stopped out. If the stock goes down .49 then reverses and trades higher, I get to make 1.01. I never hold a position past the minimum daily range unless it's obvious that your price is getting blown through. In which I pull my limit order at the last second, after the range gets traded, the only thing I know for sure is gone for that day. It's very comforting to know that if you are on the right side of the trend there is a better chance than not, that the stock is going to trade through a certain price. You don't have to guess the top or bottom. Just wait for the range because you know it's coming.

I used to mae money in the morning only to give it back the same day. I realised that I was giving most of it back after the daily range had been met. When I stopped trading after the daily range was met, I started making much more money and I get to play a lot more golf in the afternoons.

That's my two cents anyway

 

No, absolutely not. The exit is not the entry to the opposite trade. This is commonly known as an "always in" method. Many, many times the reason for an exit is a marked decrease in momentum, however that might be measured, ie., a trendline broken, etc.

In your case it seems you have a profit objective. This is no reason to reverse the trade. Unless of course you find that your method consistently gets you out at the very extreme of the move. Wouldn't that be nice.

The caveats of real-time trading vs paper-trading are: entering at the same price real-time vs the papertrade entry. This is slippage. Slippage will also appear because of the time it takes for you to pull the trigger. And as I mentioned to another paper-trader, nothing like 4-5-6 losers in a row to make even the toughest trader hesitate pulling the trigger. This translates into slippage.

But specific to your observation, unless you have documented that your paper trade exit/reversal works, don't even try it.

Aside, but related, I love craps. There is a right way to play craps. It relies on the dice passing, or not passing. For the sake of this illustration, let's say passing is an uptrend, and not passing is a downtrend. Well when I first started playing I drew a crap table on cardboard at home, used toy poker chips and dice, and practiced, practiced, practiced. Sounds like papertrading huh? I only played the pass. One day it dawned on me that if the dice weren't passing, they must be not passing. So I thought if I lost the first few bets on the pass, I would switch to the don't pass and nail it. Fortunately, I was introduced to "the chop" on paper.

Just like the markets, dice pass, they don't pass, and they chop. This sounds remarkably like the uptrend, downtrend, and sideways trend, doesn't it?

Wait for your entry signal and then enter.

of course you always have to remember that...

 

depends on your style.
For scalping I will flip my position at my exit price probably about 30% of the time.
It also depends on the market. If we are in JULY's market (extended good moves)....I flipped my position probably more around 70% of the time.

 

I see what you mean here. I strongly disagree. Not sure how to put it though... you know, it's kind of funny to see how newbie agree and traders that've been around disagree. So that should tell you something, I guess.

Let me try to put my spin on things...

Okay, for one, taking profits (at least for me) all fit into a trading plan. An exit strategy should integrate well into the trading plan as a whole. That should be number one.

Another reason has to do with probabilities. When we exit trades we look for different probabilities than we do when we enter a trade. That's the only way I know how to put it.

Plus... take your plan for entering a trade. When it is time to exit, how many time does it also give a signal to enter according to your trading plan? Hardly ever.

I think you'll see what I mean when you start trading, or at least trading more.