Hi guys, When we design or test a swing/position trading strategy, is entry/exit point crucial in the very early stage of design/testing? should I give up a strategy when the outcome is bad (which I simply set the entry/exit to next day open)? By the way, how can one tell a system has the potential after some tweaking, or it's just plain useless? Thank you for your advice.
Focus first on defining what constitutes a "swing" or "trend" for your comfort level. Then apply money management guidelines to define your entries and exits.
Actually I don't know the difference between swing or trend trading besides the fact swing is shorter term trading suitable for intraday traders. I just feel that any strategy allows me to trade without monitoring the price action in a minute basis is the strategy for me, hourly, daily, weekly... All the sudden I realized that I'm asking a question only myself knows the answer. Thank you.
Isn't it traditionally the other way around? Find your edge, define your entry and exits, then adjust position size/mm rules based on what you are comfortable with.
I tested 2 systems, both of them had much better result after I change the exit from next day open to current day close. and I realized I'm using closing price as one of my exit signals, which gave me the ability to looking in to the future. In real-life trading, can one actually exit at close? and what does that mean "exit at close"? Does it mean exit right before the stock market close.
Yep, what illiquid says. Determine your risk ahead of time, then determine size. In this case, its entry that's most important, allowing you to define risk. Always assume you are enterring a losing trade. How much can you "afford" to lose? This will keep you from having any really nasty losses. Most trading books say its the exit that counts. These books do not usually cater to the day trader though. The shorter the time frame, the more important the entry. BTW, swing trading is generally considered holding positions longer than a day. Well, unless they go crappy on you immediately! Jay
Attached is some data from my files. This data is produced when 10.18 years of daily FRGB stock prices are back tested using a single time constant price breakout system. The data shows results using time constants from 2 to 20 weeks. Please notice that some time constants show overall gains and other time constants show overall losing outcomes. You might design trading systems and vary parameters while observing results. I find different security price histories show different results. All securities do not show the same price behavior.
Be very careful using the open price. It's almost impossible to capture (easily off by 0.3%). On the other hand, the close price is fairly achievable.