Howard, Thank you for your comprehensive answer.
Regards, Richard
--- In [email protected], Howard B <howardba...@...> wrote:
>
> Hi Richard, and all --
>
> I categorize exits in several general ways.
>
> 1. The exit from the logic of the trading system. This is usually the best
> exit.
>
> Exits that can be good include:
> 2. Exit caused by a trailing stop that follows the price movement in the
> direction of the trade -- the stop portion of the Parabolic Stop And Reverse
> or the Chandelier stop as examples. This is often an excellent exit for a
> trend-following system. It requires a few bars in the trade for the exit
> level to catch up to the price, so this is best used with trades that hold
> at least a few bars. It works with daily or intra-day bars.
> 3. Exit caused by a profit target being met. This is often an excellent
> exit for a system that holds only a few bars and is never looking for the
> big win. In order to be a valid exit, the profit target must be the exit a
> substantial portion of the exits -- cherry picking is not allowed.
> 4. Exit caused by a time limit running down. This could be a stop strictly
> based on time, as in holding a maximum number of bars. Or it could be an
> inactivity exit, as in exit when there has not been favorable price movement
> within some number of bars.
>
> The poorest exit:
> 5. Exit because a maximum loss limit has been reached. This is the exit of
> last resort. It is easy to test yourself. Beginning with any trading
> system, add a maximum loss stop using the ApplyStop function. Set the limit
> so far away that it is never hit and run a backtest. Gradually bring the
> stop closer. Note the system performance as the loss point is closer to the
> entry and the maximum loss stop is hit a greater percentage of the time.
> System performance usually degrades.
>
> Moving an exit to break even falls into this last category. It is always an
> attractive sounding exit -- giving you a free trade, and all -- but seldom
> performs as well as expected. If you plan to use it, test it for yourself.
>
> By all means --- if you have a trading system where these generalities do
> not hold, do not be bound by them. I am not suggesting that one solution
> fits all situations, or that these exits will perform in the order I have
> listed for your system. But do perform your own tests so that you
> understand how your exits work with your systems.
>
> Thanks for listening,
> Howard
>
