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Exits: Our worst enemy

  • #21
  • Jul 12, 2007 9:30am Jul 12, 2007 9:30am
Quoting merlin
exactly why i think exits and entries are the same thing!

I don't quite agree, from a discretionary trader standpoint. I believe entries are important to get me into a high probability position, but managing the trade is where I make my money. Just because I would be flat in a market(if I was just sitting down to look at the charts), doesn't necessarily mean I will exit my current position. In this case it may simply mean it is time to move my stop up(again I still do everything for a reason). This is the discretion part depending on your strategy/plan. I live by cut my losers, let my profits run.

But in the end, I always have a plan on how I will react to the market. So I guess I do sort of agree with you all on that sense. I am never surprised by the market, only reacting to it. I am flexible to the market. That is why either way having a plan that you can execute day in and day out is the most important. Most of the battle I believe is just an internal one. The usual greed, discipline, fear etc etc. Of course someone who has a system that generates entries and exit signals, or has the same type of criteria, shouldn't even have any type of problem with exits. For example, if someone exits at an R:R of 2:1 every time, knowing the expectancy. Then you do that, day in and day out(just an example).

So to me money is made in my exits, because when I exit I get paid, or I am paying out. I guess it is back to the old "two people can take the same position and one can blah blah blah" Again from my standpoint as a discretionary trader and something I see a lot of people struggling with is they get to the point of finding these nice looking entries and then after that they just try to feel themselves out of the market. Once I execute my entry, it isn't up to me what happens. What is up to me(control) is when I decide to exit my position. I guess that is why I am a believer in exits are where the money is(again as a discretionary trader that has different exit criteria then entry criteria)

It really depends on the type of trader you are I suppose.


Just my 2 cents! This is a great discussion topic, thanks. I just woke up hope my thoughts are coherent lol

Mike
  • #22
  • Jul 12, 2007 9:39am Jul 12, 2007 9:39am
also of course since Darkstar mentored me I share many of the same viewpoints

But this is along the same lines from a different thread(thread was about a traders edge)

Quoting Darkstar




Fibs and long term (1hr+) price action system work for the same reason indicator systems fail. The concepts are SO pervasive within the trading community that the core patterns almost always generate order flow that helps them to work. A breakout doesn't work because it's a breakout, but because many people see the breakout and act in the same way. It's with these types of systems that exits become the critical component to success. Lots of people are entering at the breakout, but only the successful have back tested/forward tested different exit rules to determine the probabilities for the best exit. This data provides the winners their edge. It's a smaller edge then an arbitrage situation may provide, but it is still tradable for a decent enough profit.

It's for this reason you find a lot of information about entries but very little for exits. If the exits are what provide the edge, sharing that information will hand a portion of that edge over to someone else. Enough some ones and the profits are gone.
So this goes along with how two traders can take the same trade and one can lose. My edge in the case above is knowing the expectancy of my exit(which can be different in so many ways), but you are still following a plan. The plan doesn't have to be concrete. But this is also where merlin is correct also. Correct me if I am wrong merlin but I assume you are getting at this point as well(about administration work to your trade)?
  • #23
  • Jul 12, 2007 10:15am Jul 12, 2007 10:15am
from the posts i see so far, you all agree that exits are the hardest part.

I'm still trying to sort myself out. when i do i'll let you guys know
100% of traders are losers. Just that some win more than they lose!
  • #24
  • Jul 12, 2007 10:21am Jul 12, 2007 10:21am
Exits are written almost as much as any other trading aspects. There is very little "secret" stuff left.

Implementation is the key. And consistancy.
  • #25
  • Jul 12, 2007 10:31am Jul 12, 2007 10:31am
Quoting Mr demark
I wonder if the problem was because CAD had no further support after the lowest low we see on our charts. It is kinda difficult for me to let the pair set new lows with my trades. The only tool i have is fibonacci Extensions (127% 138.2% etc)

well, the learning process continues.

I read the thread that peter directed me to and now i'm wondering if scaling out of the losing position and scaling into the wining is what we ought to be doing here
I remember, months ago, thinking I shouldn't go long EURJPY because it had reached some all time high, and everyone was saying it MUST go down.
I used to look back thinking..what if I'd had 5 lots on that trade?
Fortunately my mindset has moved beyond that now and I play signals as I see them, good or bad.
If the trend says down (define a trend please Peter, before shouting your mouth off!) then why not play it? Even with the limited fundie knowledge I possess, I'm not sure that there is any compelling reason for the loonie to make a dramatic reverse.
(Please note:trading FX is a high risk venture and you listen to my advice at your peril)
  • #26
  • Jul 12, 2007 11:07am Jul 12, 2007 11:07am
because they are the fulcrum of our greed and fear.Exit too early- you give up potential profit. Exit too late- give up actual profit. And no one forces you to get into a trade but you may be forced to get out, so exits obviously have a different dynamic. It has gotten somewhat easier for me to stand by a profit target but how many times have I been flummoxed especially on a volatile pair, GJ for example, where I looked back after the fact and thought "If only I had exited on the pivot point, macd cross, stoch overbought, 382,618, 786, support, swing high, doji, phase modulated inverse confabulator alert..."
So even more important it seems, then than an exit strategy, is to develop a deeper positive expectancy of where price is likely to go so you may create a boring mechanical exit that consistently works. (Jacko's thread is a great example).
Mr. Demark, we feel your pain, but recognize that you have earned 70 pips this day, no small feat, and have earned the right to hit the links for the rest of the day should you so choose.
  • #27
  • Jul 12, 2007 11:49am Jul 12, 2007 11:49am
Quoting WTB
I personally enter off confluence of support or resistance (depending on whether I am long or short), and I exit at the next level of support/resistance.

Let's say I enter long and 50 pips above there's a previous swing top/bottom plus a round number. I'd exit few pips before hitting that level.

Other techniques I use for exiting are price pattern projections and the Average Daily Range (for intraday trades).


I have to admit, this is something I have learned recently, and agree 110% with.

Just like the "Trend Traders", our job is to get the "meat" of the trade, not exact bottoms or tops. If it ends up going on through the resistance, then so be it, be happy with your profit.

Also, you can find resistance on any time frame, I BELIEVE he is saying longer-term resistance, like say......4 hour or even a daily chart.

I am starting to work on an e-book for beginners about what I have learned. It will be written from a perspective of a newer guy (9 months) who has learned quite a bit, but still remembers EXACTLY what those first few months are like. And yes, it's going to be free. : (Besides, there plenty of bad advice out there that costs money. lol)

But Denmark, if you are cutting loses too early, I have recently found a great strategy. Take a partial profit on say....25 pips (theoretical number), and then set s/l to break even. Maybe a trailing stop, and a Take profit level if you want.

And then here's the key........GO OUTSIDE. Don't look at that damn computer any longer. Enjoy your day. Go get drunk, anything. Just don't bother with it.

Remember why we all started trading? Two reasons.......getting rich (I certainly can't help you with that.) and to have a better quality of life. It's the second part we forget to concentrate on. If you aren't there to screw things up, then you won't. It took me about 7 months to learn that.

I must be a genius.

I will however say, I have been reading your posts, and think you are a VERY GOOD trader in the making.
  • #28
  • Jul 12, 2007 12:00pm Jul 12, 2007 12:00pm
Quoting merlin
yes, so at any given point, you are one of these three things on every instrument. so here is my point....if you want to be short at this very momement, should it matter if you have a position already? whether it is short or long? or whether you are flat? basically what im asking, should my current position effect my opinion on the future? and if the answer is no, then how can entires and exits be any different? entry/exit is mear administration work to make my position reflect my opinion.

Merlin, you are enlightening yet again. Which of course, makes my brain itch. (Too much thinking.)

So in theory, since I am currently flat the Icelandic Krone / Israeli Shekel, I am in a position? (I'm sure someone somewhere in this forum is crazy enough to trade something like that.)

As far as another comment made about position size, yes that's the key. For example, if I feel I need a 50 pip stop-loss to cover this last area of resistance, then I make sure those pips aren't worth a huge amount of my account. So for example, if I am down 25 pips at 5 cents a pip, it isn't going to be the same feeling as at 20 dollars a pip. It's all psychology.

So that helps too. I think we all get into this thinking "It only needs to be +1 to make 10 dollars......" Sounds easy, doesn't it?
  • #29
  • Jul 12, 2007 12:16pm Jul 12, 2007 12:16pm
Quoting Mr demark
Guys, i have a problem. A big problem in my opinion.

I tend to exit without a good reason and i cant break out of the habbit!

Today i exited my eurcad and usdcad short trades for 20 and 46 pips respectively...For no good reason at all other othan i was in profit.

HELP


Something that I have done that helps me is to write down a few of IF/THEN statements. For example,

1) IF price goes 20 to 50 pips, THEN I will close half my position and move the other half to break even.

also

2) IF I leave pips on the table, THEN I will have NO REGRETS. I'll go look for another good entry.

and

3) IF I get stopped out, THEN I will have NO REGRETS. I'll go look for another good entry.

A group of IF/THEN statements are much like mechanical rules for an EA or auto trading system. The difference is that these IF/THEN statements are meant to control you instead of a computer.


Another thing that is helpful is to write down what things you wish to accomplish everyday you trade. Like...

1) minimum pips to earn daily (20 is a good number)
2) a smooth equity curve
3) as little drawdown as possible
etc.

If you accomplish what you expect then don't beat yourself up for what you may have missed. NO REGRETS.

Remember - even if you break even you are doing better than most traders out there.
  • #30
  • Jul 12, 2007 12:23pm Jul 12, 2007 12:23pm
Quoting marejp
Hi Mr demark

Something that helped me to get past that obstacle was to open trade 2 accounts. One was for the trading plan and the other for taking quick profit. I started of 50/50, then gradually increased the trading plan account. In the end there was enough gratification in seeing my trading plan account grow to make up for the "instant gratification" I needed to boost myself all the time. All this small psychological issues we have to overcome on our way .......

Enjoy

Neato Marejp - I like your thinking - creatively controlling the Trader's Brain
  • #31
  • Jul 12, 2007 1:48pm Jul 12, 2007 1:48pm
Exiting plays with our basic feelings of fear and greed, so it's hard to control them.

One thing that really helps me out is to follow my exit plans (if you don't have one, make one, at least a general one for discretionary traders). And think long term. Long term thinking makes me calm and not excited about little profits gain or loss. I plan to do this for years and years and that helps avoid being swayed by the dollar signs.
  • #32
  • Jul 12, 2007 2:05pm Jul 12, 2007 2:05pm
Quoting hilmy83
Exiting plays with our basic feelings of fear and greed, so it's hard to control them.

One thing that really helps me out is to follow my exit plans (if you don't have one, make one, at least a general one for discretionary traders). And think long term. Long term thinking makes me calm and not excited about little profits gain or loss. I plan to do this for years and years and that helps avoid being swayed by the dollar signs.
It plays with our basic feelings because of the uncertainty principle of not knowing what is going to happen next. But the truth is that nobody really knows what's going to happen next. Having a tested set of rules helps soothe those feelings, particularly if our rules have been proven through experience.
  • #33
  • Jul 12, 2007 3:40pm Jul 12, 2007 3:40pm
Quoting clockwork71

I will however say, I have been reading your posts, and think you are a VERY GOOD trader in the making.
thank you clockwork71, I'll be drilling these things into my trading diet
100% of traders are losers. Just that some win more than they lose!
  • #34
  • Jul 12, 2007 5:12pm Jul 12, 2007 5:12pm
Quoting merlin
shouldnt i have the same mindset for both trades?
Eh! that got me thinking too...but that means the criteria to exit ur LONG trades would be the same when you decide that its time to go SHORT? Now im wondering why thought that negated me all these while, sometimes it takes someone to knock, no, bang the door before you get it.

Then again i dont think we will always get it right all the time, who will?
  • #35
  • Jul 12, 2007 5:23pm Jul 12, 2007 5:23pm
Quoting jest1081
Eh! that got me thinking too...but that means the criteria to exit ur LONG trades would be the same when you decide that its time to go SHORT? Now im wondering why thought that negated me all these while, sometimes it takes someone to knock, no, bang the door before you get it.

Then again i dont think we will always get it right all the time, who will?
the market goes up, down and sideways. I dont want to be in a siddeways market. I still dont understand merlin
100% of traders are losers. Just that some win more than they lose!
  • #36
  • Jul 12, 2007 5:39pm Jul 12, 2007 5:39pm
We face a psychological paradox when it comes to trading exits, and i dare say that only those who have traded a certain period of time time will realise that exits are probably even more important than entries.

I Tried many ways to work out a good exit strat for myself and finally found something that suits me very well, i let the trails decide my exits, oh of course i do have various levels where i will take my profits.
  • #37
  • Edited 6:03am Jul 13, 2007 5:48am | Edited 6:03am
Quoting merlin
i often hear that "exits are more important than entry" and vice versa, or things like "the money is in the exits" etc. but one thing i could never understand...what is the difference between an exit and an entry? with regard to the expectancy of the system, entry and exit are both are technically the same thing, no?
I'm definitely with Merlin on this one, although I concede that there are many possible ways of looking at the relative value of entries and exits.

IMHO exits are psychologically more difficult, because the decision must be made when there is real money on the line.

Whether (for example) an EMA(15)/EMA(20) crossover offers a more profitable entry than an EMA(10)/EMA(15) crossover is a curve fitting issue. However, the market itself never cares whether we're entering or exiting. Hence the issue as to whether a 50 pip trailing stop is more profitable on average than a 100 pip profit target is likewise curve fitting. In each case we're talking about nuances in the timing, that – given the random nature of price movement – will eventually sum to approximately zero, across a large enough number of trials. Hence choosing arbitrary timing points does little to improve overall expectancy. All we end up doing is enhancing win rate at the expense of win size, or vice versa.

A system is robust to the extent that it employs a technical (or fundamental) principle that exploits a recurring inefficiency in price movement. Examples might include simply the existence of a trend, a breakout from congestion, a change in momentum, or a pullback/lull in a trend due to support/resistance. Again, this applies equally to both entry and exit.

Profit is the number of pips attained between entry and exit; in this regard both contribute equally to bottom line.

If entry happens to be opening a long position, then exiting that position has exactly the same effect as opening an offsetting short position. (The same kind of argument can be used for scaling in, where it's valid to think of each order as a separate trade, in its own right). Hence Merlin hits the nail on the head, in my view.


Quoting merlin
rubish. if following your plan means turning a winner into a loser, then so be it
At the risk of being accused of sucking up to the moderators , again I must agree with Merlin! IMHO the "never let a winner become a loser" philosophy is flawed, and is the result of human nature wanting to be right more often than not. But the reality is that every pip moved, whether above or below the entry point, contributes equally to the monthly bottom line. A system can yield positive expectancy with a win rate < 50%, provided that the average win size exceeds average loss size by a sufficient margin.

David
  • #38
  • Jul 13, 2007 11:13am Jul 13, 2007 11:13am
Well at the risk of also being considered a suck-up to Merlin, I believe entries are equally important. That is after all where a trade begins whichever direction up or down and whether or not it is a reversal of a previous position. If the trade is entered wrong an exit right away is the best course of action regardless of whether or not it can be exited down the line with a profit. I know how some like to say that a proper exits strategy can make a loser or less profitable system better. Not if your entries are continuously in the wrong place and/or time.

And it is at the entry point where you're risk/reward and money management determine where your exit point should be. But when you try to determine your entry point based on where you have pre-determined where your projected exit point might be is having things backwards.
  • #39
  • Jul 13, 2007 11:35am Jul 13, 2007 11:35am
Well, Im going to have to go with anyone here that thinks exits are MORE important than entries..

don't agree with me? allow me to prove it to you..

An experiment was done, and you can conduct the same experiment yourself if you would like, where market entries were decided with a flip of a coin. The only thing left after that, we can all agree, is the decision of where to exit. A strategic exit plan was consistently used and believe it or not, the account balance grew.

I am not saying entries are unimportant by any means. For the experiment described above did not generate exceptional returns, but try doing the same experiment above where you enter the market whenever you want, but you exit randomly.. I can assure you... it wont work out so well
  • #40
  • Jul 13, 2007 12:05pm Jul 13, 2007 12:05pm
Well I agree and have heard of such tests being done before.

Only thing is I don't anyone that flips a coin to determine their entries. Do you?
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