I've been backtesting various entries but I have a real problem with the exits. I'm not sure when to get out. I've tried Bollinger bands, MA crossover, stochastics, etc. I've also ran the optimizer to try every combination of profit stop & stop loss and it usually comes up with something but kind of weird, sometimes it'll say a 25 pt (on ES) profit target is optimal. That seems kind of like random buying and holding to me. Any other useful ideas for exits? I'd love to see if some of these entries could work, I think they're just missing an exit.
I use a combo of a ATR trailing stop set to 3 ATRs and momentum indicator If the momentum starts to wane tighten the stop. You find you get stopped out a bit more often but you also get much more action when the trade runs.
I would say your exit depends on your entry. More specifically, why did you take your entry? Entries are typically based on some probability setup based on the current market dynamic. After entry, either the dynamic is still in your favor or it isn't. Take trend following for example. You might use a support trend-line to identify a break-down of your trend. Or you might use S/R from a higher time-frame to identify areas of resistance that the trend will run into. Or perhaps you are trading a reversion to the mean strategy, in which case you want to identify the oscillations. Once you identify the dynamic you are trading, you should be able to narrow how you want your exits. Take Bogan7, who talks about his 3ATR + momentum based exit system. Based on this system, I am going to guess that he is primarily a trend follower (though, I may be wrong). When momentum is in his direction, he increases his stop -- trading WITH the market. When momentum reverses, the trend is likely to reverse (acceleration is the derivative of velocity is the derivative of position...), so he tightens his stops to take profit. He is identifying a changing market dynamic.