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Exits: Our worst enemy

  • #41
  • Edited Jul 14, 2007 4:30am Jul 13, 2007 12:34pm | Edited Jul 14, 2007 4:30am
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? if i short GBPUSD, why does it matter if that trade is getting me in or out of a position? shouldnt i have the same mindset for both trades?

this question is not aimed at you Mr. D, because you are talking about human habits, which is a different thing...but your post sparked me to ask this quesiton to everyone
Wow, Merlin said a bunch here.I never thought of it this way.
But why do we have to take something simple and make it so complicated all the time?
Simply put, unless everything tells you to take a trade in the opposite direction, You have to ask yourself why would you be exiting .
I never thought of hunting for a trade in the opposite direction to determine an exit, but I think I might try this for a bit and see what happens.
  • #42
  • Jul 13, 2007 2:18pm Jul 13, 2007 2:18pm
No, entry and exit are not the same, and the reason they aren't is risk.

If you have endless capital and a perfect estimate of the probabilities, then it's ok to enter when the probability is one part in a bazillion greater than 50% going your way, and to get out as soon as it touches 50% going the other. But few of us have endless capital and perfect estimates of the odds, otherwise we'd all have been long $cad for the last 5 years .
  • #43
  • Jul 13, 2007 3:55pm Jul 13, 2007 3:55pm
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?
now i know what u were saying, i never quite understand the sentence at first.

Yes, both exits and entry are the same thing...in the sense that they both employ leveraging your account's position, However the rules for entry and exits may differ (they do). And that is where they differ and is the basis of this thread.

and that is why the money is in the exits, not the entry.

knowing where to ente is easy. Take a pin bar for example. But exiting that trade without any past technical support/resistance Fibonacci etc, it is very difficult to exit
100% of traders are losers. Just that some win more than they lose!
  • #44
  • Jul 13, 2007 4:11pm Jul 13, 2007 4:11pm
Quoting superdezign
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….
Superdezign, I would be interested to see the results of the experiment. The only coin tossing experiment I've read about related to the timing of the entry, rather than the direction. Truly random entry would have us trading against the trend 50% of the time, effectively flouting the maxim "the trend is your friend". This has been a recent topic in the following thread (post #14 onward):
http://www.forexfactory.com/showthread.php?t=37800
and then here:
http://www.forexfactory.com/showthread.php?t=38050

Quoting HalifaxCB
No, entry and exit are not the same, and the reason they aren't is risk…..
If you have endless capital and a perfect estimate of the probabilities, then it's ok to enter when the probability is one part in a bazillion greater than 50% going your way, and to get out as soon as it touches 50% going the other….
Halifax, IMHO the "finite capital" problem is more of a position sizing, than an exit, issue. Assuming the original placement of protective stoplosses was based on sound technical criteria, then I agree that they should be adhered to, to limit risk. In the case of a making a profitable exit, risk is generally no longer an issue.

I'm not saying that we can calculate the probabilities with any high degree of accuracy, just that we can enhance expectancy by exiting (whether fully or partially) when the probability of a favorable continuation appears low (e.g. our upward breakout trade loses momentum upon hitting a confluence of pivot/Fibo/resistance). In other words, technical criteria, rather than simply taking profit at 50 pips because 50 was the nearest round number that fitted our back-testing results.

David
  • #45
  • Jul 13, 2007 10:30pm Jul 13, 2007 10:30pm
decide which side face up in the start
control your power in fliping (the sound of the cling should be noticed)
count 1, 2 ,3 and catch the coin in the air

after hundreds of fliping, you will increase the odd, even can decide which side you want.
start with big and heavy coin for practice .
.....................................................................................
back to topic :
imagine a position without exit, just being there following the trend and collecting swap..... that would be my dream come true

personally , there is few position that i can hold, but if it can be hold even only for wednesday triple swap, i'll hold
  • #46
  • Jul 14, 2007 4:35am Jul 14, 2007 4:35am
Quoting Mr demark
now i know what u were saying, i never quite understand the sentence at first.

Yes, both exits and entry are the same thing...in the sense that they both employ leveraging your account's position, However the rules for entry and exits may differ (they do). And that is where they differ and is the basis of this thread.

and that is why the money is in the exits, not the entry.

knowing where to ente is easy. Take a pin bar for example. But exiting that trade without any past technical support/resistance Fibonacci etc, it is very difficult to exit
Mr demark ,I don`t know if this is the kind of reply your looking for because it`s kind of basic for someone with your experience, but if price is continuing up/down and breaking new ground I like to use fib expansions.
  • #47
  • Jul 14, 2007 4:36am Jul 14, 2007 4:36am
I have to say entry and exit are both too damn important.
  • #48
  • Jul 14, 2007 5:34am Jul 14, 2007 5:34am
Quoting randomlight
Wow, Merlin said a bunch here.I never thought of it this way.
But why do we have to take something simple and make it so complicated all the time?
Simply put, unless everything tells you to take a trade in the opposite direction, You have to ask yourself why would you be exiting .
I never thought of hunting for a trade in the opposite direction to determine an exit, but I think I might try this for a bit and see what happens.
I had to think about this a while for Merlin makes some good points, and he is correct to some degree, but

entries = opportunity to increase risk for a possible profit

exits = decrease risk to, as best we can, maxamize profit and minimize loss..

When you exit a market, that does not mean that you should necessarily be short, but it means that you no longer see the opportunity or any reason to have a position opened.

Say for example, your system is a breakout system, and you wait for a certain show of strength before you enter. We see an opportunity so we enter the market. Lets say we place our stop right below where the market made its breakout.. When our stop is hit, that does not mean the market is weak enough to short, all it means is that the strength we saw before is no longer present in the market. The only time Merlin's statement is correct is in a stop and reverse system, where one is always in the market.

Feel free to present an argument to this statement, I love debates

Dave
  • #49
  • Jul 14, 2007 5:40am Jul 14, 2007 5:40am
Quoting SunTrader
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?
No, in fact I think that would crazy, for one can just trade with the major trend in place and have (I think) a 55% chance of making money.

My point was only to prove that it can be done, and if flipping a coin produces profits (when using a strategic entry) one should focus more on the exits of a system, but instead most traders spend all their time and energy on trying to find the perfect entry. Which is a waste of time, considering it has been proven that most entries are hardly better than pure chance.

Traders... keep your entries sweet and simple to improve the robustness of your system, and focus on your exits to increase your expectency.

Remember it all really comes down to lets your profits run and cut your losses short
  • #50
  • Jul 14, 2007 8:39am Jul 14, 2007 8:39am
I think i was going through a phase, cuz i'm normally satisfied with my exits. And folks, believe what Super is saying. Exits are just as important, if not more important than the simply entires.

Thanks for all the input
100% of traders are losers. Just that some win more than they lose!
  • #51
  • Jul 14, 2007 8:43am Jul 14, 2007 8:43am
Quoting Editor
In our book, Computer Analysis of the Futures Market, we tell an amusing anecdote about a trader who seemed a bit loony because he used a Coke bottle with a broken radio antennae sticking out of it to receive trading advice from other planets. This advice, like most trading advice, was only related to the entries. When the voice from the Coke bottle told him to enter a trade he would come back to my desk and want to put the trade on right away saying something like: "They are buying soy beans on Mars, buy some beans for me".

The other traders sitting around the board room would overhear these frantic orders and became quite interested in this strange trading advice. Naturally they were quick to make fun of the trader when he was losing but they didn't have much to say when he was winning. The trader with the Coke bottle eventually learned that to avoid ridicule he had to take his losses quickly and hold on to his winners as long as possible. His trading steadily improved and he wound up being a surprisingly good trader. Obviously, his reliance on trading advice from other planets had nothing to do with his success. His entries were no better or worse than random but he had learned to be very good at his exits.
.
100% of traders are losers. Just that some win more than they lose!
  • #52
  • Jul 14, 2007 8:51am Jul 14, 2007 8:51am
Quoting Mr demark
.
AMEN!
  • #53
  • Jul 14, 2007 8:55am Jul 14, 2007 8:55am
Quoting superdezign
The only time Merlin's statement is correct is in a stop and reverse system, where one is always in the market.
hmmm, not quite what i was saying. there are three positions you can have (long, short, flat), not just two. so if you are long, and you exit, that doesnt mean you are getting short (like a SAR system)...you could be just getting flat.

at any given point, you (or your system) wants to be long, short or flat. if you want to be short, and your position is long, then you exit and enter long. if you want to be short, and your position is flat, you enter short. see what i mean, that entry/exit is just administration work to make my position reflect my opinion??

i know exits can be tough on the mental side, but if you look at the pure mechanics of the situation, there is really no reason to view entries or exits any different.
Relax and be happy.
  • #54
  • Jul 14, 2007 9:03am Jul 14, 2007 9:03am
Quoting superdezign
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.
your argument for "proof" is that we are trading profitably by flipping a coin to enter, and using strategy to exit. scientifically, this proves nothing.

if we reverse this situation, and enter with an equally good strategy, and exit with coin flip, wouldnt we have the same exact results?? of course we would!

the "strategy" part is the part making money! a one legged man can still hop to the mailbox, but if he had both legs he could run! does it matter which of his legs is missing?? its the "good" leg doing all the work anyway LOL.

btw, these experiments you are citing, can you give us a link? any good scientist would do the experiment both ways (entry and exit with coin flip). So if this experiment really exists, and is done by a real scientist, i'd bet it will show that exits and entry are mechanically the same thing.
Relax and be happy.
  • #55
  • Jul 14, 2007 9:29am Jul 14, 2007 9:29am
I don't think Merlin was suggesting that a substantial winner should be allowed to become a loser. If I'm up 5 pips on a Trade, I'm certainly not putting a SL @ +1p. If I'm up 200, that's a different story.

This is one method of countering the Paradox of Good Exits vs Letting Profits Run.

http://www.forexfactory.com/showpost...9&postcount=21

  • #56
  • Jul 14, 2007 11:29am Jul 14, 2007 11:29am
Quoting merlin
your argument for "proof" is that we are trading profitably by flipping a coin to enter, and using strategy to exit. scientifically, this proves nothing.

if we reverse this situation, and enter with an equally good strategy, and exit with coin flip, wouldnt we have the same exact results?? of course we would!

the "strategy" part is the part making money! a one legged man can still hop to the mailbox, but if he had both legs he could run! does it matter which of his legs is missing?? its the "good" leg doing all the work anyway LOL.

btw, these experiments you are citing, can you give us a link? any good scientist would do the experiment both ways (entry and exit with coin flip). So if this experiment really exists, and is done by a real scientist, i'd bet it will show that exits and entry are mechanically the same thing.


Successful trading boils down to letting your profits run and cutting your losses short.. (read Mr. Demark's statement above) you can enter randomly, and still make money, but exiting randomly, or having a poor exit strategy is why alot of people lose money. If you do the experiment I spoke of earlier, but did it backwards, where you exited randomly and entered using a well devised strategy, I bet you would lose money in the end.

I like your analogy though

Ill get you the name of the guy who did the experiment.. It was in a book I read, Ill have to look it up.
  • #57
  • Jul 14, 2007 11:37am Jul 14, 2007 11:37am
Quoting superdezign
...but did it backwards, where you exited randomly and entered using a well devised strategy, I bet you would lose money in the end.
its a bet

now we just have to find the experiment!
Relax and be happy.
  • #58
  • Jul 14, 2007 2:00pm Jul 14, 2007 2:00pm
Quoting merlin
its a bet

now we just have to find the experiment!
Here you are Merlin:

Tom Basso designed a simple, random-entry trading system … We determined the volatility of the market by a 10-day exponential moving average of the average true range. Our initial stop was three times that volatility reading. Once entry occurred by a coin flip, the same three-times-volatility stop was trailed from the close. However, the stop could only move in our favor. Thus, the stop moved closer whenever the markets moved in our favor or whenever volatility shrank. We also used a 1% risk model for our position-sizing system. …
We ran it on 10 markets. And it was always, in each market, either long or short depending upon a coin flip. … It made money 100% of the time when a simple 1% risk money management system was added. … The system had a (trade success) reliability of 38%, which is about average for a trend-following system.

Source: Van K. Tharp, Trade Your Way to Financial Freedom
  • #59
  • Jul 14, 2007 2:34pm Jul 14, 2007 2:34pm
good find, but that doesnt really settle the argument in my view (i remember reading this, btw). the argument is whether or not the "reverse" will show the same results. i never said you cant make money with random entry, i said radom entry will produce the same results as random exit, given the strategy on the "other side" is equally as profitable.

they only tested the random entry, and did not perform the reverse experiment (unfortunately). obviously this is not a science-grade experiment, rather a quick observation on their part. they are showing that a one-legged man can hop to the mailbox, but not determining of he can do the same no matter which leg is missing.
Relax and be happy.
  • #60
  • Jul 14, 2007 5:19pm Jul 14, 2007 5:19pm
It wouldnt produce the same results, only because it would not allow you to follow one of the most important rules of trading: let your profits run and cut your losses short

Quoting merlin
good find, but that doesnt really settle the argument in my view (i remember reading this, btw). the argument is whether or not the "reverse" will show the same results. i never said you cant make money with random entry, i said radom entry will produce the same results as random exit, given the strategy on the "other side" is equally as profitable.

they only tested the random entry, and did not perform the reverse experiment (unfortunately). obviously this is not a science-grade experiment, rather a quick observation on their part. they are showing that a one-legged man can hop to the mailbox, but not determining of he can do the same no matter which leg is missing.
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