Looking for input on reverse to exit strategies. Variables and calculations that can be used to identify key reversal trigger points. Objective: To develop an algorithmic stop. Ie... Sitting Long 6 ES down 12 ticks from market and 20 ticks from exit. At traditional 3 point stop point. Reverse and exit scenario: Go Short 24... results in the overall tradeset being 4 ticks down from market/Break Even and 12 ticks from a proftable exit. Set TS to 2 ticks. (IMO too tight..) Reversal Risk: 12 points + 18 points = 30 points. 12 point reversal risk to potentially reduce stop loss or turn the tradeset around. Experimenting and looking for input...
In my testing, always-in-the-market trading systems (also called "two state" systems because they can either be (1) Long or (2) Short) usually produce smaller gain-to-pain ratios than sometimes-in-the-market trading systems (also called "three state" systems because they can either be (1) Long or (2) Short or (3) Out). Two state systems usually produce smaller Sharpe ratios, smaller MAR ratios, smaller Ulcer Index scores, and smaller equity curve R-squared values, than three state systems. At least in my testing. Two state systems also produce a LOT of whipsaw trades, most of which get filtered out in a three state system. Your testing, on your systems, might yield a different result.
Understood... Three state system. The optimation we seek is to identify trigger points to selectively take the reverse exit gamble in liu of the straight stop. Obviously cubing reverse position becomes a pseudo martingale... Albeit a one shot stop... Traditional pops and drops reversals do in fact create more pain than profits... Chandaliering, Yo'Yo's etc. nothing indicates statistically better odds and in fact the results impact the future chain of trades. Working on position data calculations in the form of Tick lanes identifying movement patterns from the start of the tradeset. A certain fingerprint emerges in the form of contiguous movements. The tradeset position is hedged by an opposite counter tradebot which provides a $ value of gains. A certain point emerges where the hedged counter exits and is flat while the drawn down position is near stop. At this point one of three actions can occur. 1. Stop and let the tradesets reset. 2. Take an offsetting Position on the drawn down tradebot to lock the spread. let the Counter tradebot continue on until it too gets into a locked spread situation. Exit the entire tradeset. 3. If the pattern is right... Reverse... various implementations. ie. stop tradebot 1 and increase size of counter.. leave counter alone and reverse primary. Our trade data consists of the number of contiguous tick movements for the duration of the tradeset, session and historic. Counter trade gains and movement. There is a trigger point here where the over all risk is offset by the counter tradebot gains. Need to identify another variable to validate the trigger. Without the complexities of the above... Under what conditions and circumastances would you reverse your position?