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Exits: Our worst enemy

  • #81
  • Jul 16, 2007 8:55pm Jul 16, 2007 8:55pm
hmm, may have thought of an even better way to explain my point (for the 4th time)

pretend you are trading two systems. you happen to be long GBPUSD because systemA got you in the trade 3 days ago. systemB now gives you a short signal on GBPUSD. so now you have to get rid of the long GBPUSD position (get short, or at least get flat). the very next trade that you make, to get rid of the long position, is that an exit, or an entry? or does it even matter?
Relax and be happy.
  • #82
  • Jul 16, 2007 9:10pm Jul 16, 2007 9:10pm
Quoting hanover
Tom Basso is interviewed in Jack Schwager’s New Market Wizards, which was written during the early 1990s. Was Tom trading forex, or strongly trending stocks? According to Mr Schwager (see p 280), Tom was trading stocks, then moved into futures. I also recognize the quote from Mr Demark: it originally comes from Chuck Le Beau (see http://www.forexfactory.com/showthread.php?p=89109)
Then see my post here for some background:
http://www.forexfactory.com/showthread.php?t=38050
The equities market during the 1990s was trending strongly..... upward
this has a lot of weight to it, great post. oh yeah, its lebeau's that i remember reading this from!! i skipped that chapter in tharp's book because i had already read basso's market wizards interview, and the first couple paragraphs told me that tharp is no jack schwager (schwager is actually a real trader btw, unlike tharp who only knows trading from the "outside")
Relax and be happy.
  • #83
  • Jul 16, 2007 10:08pm Jul 16, 2007 10:08pm
there is no difference between enter or exit.
i simply don't understand why there is even a debate about this.

having said that. i've seen more strategies that are enter oriented.

is it any wonder why so many are thinking exit is the hardest.
BAM BAM BOOM! -bravado
  • #84
  • Jul 16, 2007 10:54pm Jul 16, 2007 10:54pm
ooooh now i get a piece of the picture.........
it is like in a room , one get in and out from the same door, one get out from emergency door, and other just jump out from the window......
  • #85
  • Jul 17, 2007 5:16am Jul 17, 2007 5:16am
Quoting Gwan
ooooh now i get a piece of the picture.........
it is like in a room , one get in and out from the same door, one get out from emergency door, and other just jump out from the window......
neat analogy.
BAM BAM BOOM! -bravado
  • #86
  • Jul 17, 2007 5:30am Jul 17, 2007 5:30am
Quoting merlin
agreed. risk considerations can definetely make entry and exit carry different characteristics. but as far as expectancy goes, i still see no good argument for why exit/entry should be viewed any differently.
Here's a simple formula (works for me):
Entry - clear expectation of gain;
Exit - holding the position has no clear expectation of gain.
Stop and Reverse - holding the position has a clear expectation of loss (= a clear expectation of gain by going the other way).

Of course these are very conditional on your trading style, time frame, r/r levels, etc, but the big thing is the old saw "When in doubt, stay (or get) out".
  • #87
  • Jul 17, 2007 5:36am Jul 17, 2007 5:36am
Exit strategies are a part of the system as a whole. The system that was developed by the trader to match his/her trading psychology.

I think i will continue to scale out of my position and trail at the same time.

that is, take some off at first target, let the rest run for a free trade
100% of traders are losers. Just that some win more than they lose!
  • #88
  • Edited 6:25am Jul 17, 2007 6:11am | Edited 6:25am
This is a great thread and very thought provoking. Maybe I can be accused of sitting on the fence, but in my view entry and exit are both the same and different. They have the same effect on the bottom line and are done with the same intention (to get a profit) so the equations and outcomes are the same, but the critical difference is that the psychology of the entry and exit are very different. In the entry you have optimism, whilst in the exit you have fear and optimism!

I quote from "Reminiscences of a Stock Operator" written by Edwin LeFevre about the legendery trader Jesse Livermore. The observations of Livermore written below stuck in my mind because it was a realisation for me of my past errors.

"I sometimes think that speculation must be an unnatural sort of business, because I find that the average speculator has arrayed against him his own nature. The weaknesses that all mean are prone to are fatal to success in speculation - usually those very weaknesses that make him likeable to his fellows... The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you you hope that every day will be the last day - and you lose more than you should had you not listened to hope... And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulse. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his losses may develop into a much bigger loss, and hope his profit may become a bigger profit. It is absolutely wrong to gamble in stocks the way the average man does."

Although the setting of our trading now is much different, I think the observations about our mindset are still valid and worth keeping in mind. I'm not suggesting getting out early if losing or late if winning - I'm suggesting that when you are winning don't let fear rule you, and when you are in a losing trade don't let hope rule you.
  • #89
  • Jul 17, 2007 6:41am Jul 17, 2007 6:41am
Quoting hardhead
Although the setting of our trading now is much different, I think the observations about our mindset are still valid and worth keeping in mind. I'm not suggesting getting out early if losing or late if winning - I'm suggesting that when you are winning don't let fear rule you, and when you are in a losing trade don't let hope rule you.
good.

learn about the market. understand your strategy.
be comfortable with the trade you are making.
BAM BAM BOOM! -bravado
  • #90
  • Jul 17, 2007 6:52am Jul 17, 2007 6:52am
Quoting merlin
this has a lot of weight to it, great post. oh yeah, its lebeau's that i remember reading this from!! i skipped that chapter in tharp's book because i had already read basso's market wizards interview, and the first couple paragraphs told me that tharp is no jack schwager (schwager is actually a real trader btw, unlike tharp who only knows trading from the "outside")
Lebeau's book... is that worth the read?
  • #91
  • Jul 17, 2007 2:43pm Jul 17, 2007 2:43pm
Quoting Mr demark
Exit strategies are a part of the system as a whole. The system that was developed by the trader to match his/her trading psychology.

I think i will continue to scale out of my position and trail at the same time.

that is, take some off at first target, let the rest run for a free trade

Mr. Denmark,

I really have to agree with you on this 110%, as I think you and I are at least somewhat similar in our psychological approach to this. (Or maybe I should say "fears"?)

Scaling out is a good thing, and I always try to gain and take enough to make sure that at the very least, I am going to break even. The rest is just gravy....UNLESS I SCREW IT UP. This is why I like the trailing stop so much. It is so hard for me still to not take profits as I get them. However, I am steadily getting better at this. (I also, as I told you, get out of the damn house, before I do something stupid like take some profits early.) Last week one of my best trades was a trailing stop that got me out, while I was 20 miles away at the zoo!

I also have come to realize that I am more of a triangle/rectangle breakout trader. It just suits my style. My mentor, who taught me so much, is a swing trader, and does quite well at it. It's not that I can't do well, but I am just so much better at breakouts that it makes sense for me to do those trades. He doesn't like trailing stops on his trades because he has balls of steel, I on the other hand, haven't been doing this as long.

Today was an aggravating day for me. I actually traded that EUR/JPY breakout, while I was on the phone with my mentor, he started going on about how the Euro was weak, crap, etc....and that I shouldn't be wasting my time with it, on any cross. He was going on about the "wave" (i.e. Raghee Horner's system) was above it, and it's not a good place to be in it.

Well, his opinion was just that, and it was the way he saw it. He doesn't really do breakout trades at all. So, I listened to him and closed out of the position at just a handful of pips. (5 or so.)

Well, it could have been an easy 40-50 if I just listened to myself. And that is the point isn't it? Trusting yourself. Believing in yourself. And doing what works for YOU.

I also am only trading with trend lines and fibos now. He thinks I am crazy, most people do, but I think I am on to something. Naked is good. We are born that way for a reason. It is to teach us how to be monster traders, I swear. : I believe you are mainly a fibo trader as well, which means you don't have 43,000 lines on the chart to make 10 pips.

The point is this, I believe that you need to work with your strengths, and more importantly, your weaknesses. If exits are hard for you, as they are for me, then a trailing stop is in order. Give yourself time before you decide you know exactly when to get out.

As I would like to maximize profits, after I am out of the trade, I always try to analyze what points make the most sense. I may never know the answer, but who knows.....if I ever figure it out, I will make sure to share it with you.


Good luck all.
  • #92
  • Jul 17, 2007 3:39pm Jul 17, 2007 3:39pm
Quoting merlin
this has a lot of weight to it, great post. oh yeah, its lebeau's that i remember reading this from!! i skipped that chapter in tharp's book because i had already read basso's market wizards interview, and the first couple paragraphs told me that tharp is no jack schwager (schwager is actually a real trader btw, unlike tharp who only knows trading from the "outside")
Coincidentally, a couple of months back, a friend loaned me a couple of videos, one by Schwager, one by Tharp. I'm not promoting these, but just in case anybody wonders what I'm talking about, here they are:
http://www.amazon.com/Winning-Method.../dp/B000A6LIP0
http://www.amazon.com/Disciplined-Tr.../dp/1592802478

Just like the reviewers at Amazon, I enjoyed listening to Jack a lot more than I did Van. Jack is a natural speaker, and made some excellent points on all aspects of trading, punctuated with some very funny anecdotes. Van's presentation came across as more of dry university lecture in general psychology. I much preferred his Financial Freedom book. It was from this video that I learned he does not actually trade himself.
__________________________________________________

Quoting HalifaxCB
Here's a simple formula (works for me):
Entry - clear expectation of gain;
Exit - holding the position has no clear expectation of gain.
Stop and Reverse - holding the position has a clear expectation of loss (= a clear expectation of gain by going the other way).

Of course these are very conditional on your trading style, time frame, r/r levels, etc, but the big thing is the old saw "When in doubt, stay (or get) out".
Crystal clear, and I still heed your previous point about the relationship between exit and risk.
__________________________________________________

Quoting hardhead
This is a great thread and very thought provoking. Maybe I can be accused of sitting on the fence, but in my view entry and exit are both the same and different. They have the same effect on the bottom line and are done with the same intention (to get a profit) so the equations and outcomes are the same, but the critical difference is that the psychology of the entry and exit are very different. In the entry you have optimism, whilst in the exit you have fear and optimism!
...
I'm not suggesting getting out early if losing or late if winning - I'm suggesting that when you are winning don't let fear rule you, and when you are in a losing trade don't let hope rule you.
Nice post, and I agree that successful exit is a marriage between expectancy and psychology.
__________________________________________________

Quoting Mr demark
Exit strategies are a part of the system as a whole. The system that was developed by the trader to match his/her trading psychology.

I think i will continue to scale out of my position and trail at the same time.

that is, take some off at first target, let the rest run for a free trade
That is very much along the lines of what I'm currently experimenting with. I generally enter 3 positions, sized 2,2,1 units. That allows plenty of flexibility for scaling in and/or out at different price levels, perhaps even using diffrerent combinations of quantities. Re profit exits, for better or worse, I often adjust these dynamically as the trade encounters S/R (or Fibo/pivot type confluences), or just starts moving sideways. Frequently I let the final component ride on a trailing stop. I'm not saying that this necessarily offers better overall bottom line expectancy, but it suits my personality to "hedge my bets" a little, between win rate and size. So instead of getting either a "full win" or a "full loss", I generally get a smoother overall level of income. I think that's more about personality/psychology than expectancy, although hopefully I enhance expectancy by exiting at S/R, or at points where there is "no clear expectation of gain", as Halifax neatly describes it.
__________________________________________________

Quoting clockwork71
Or, there are a lot of newer traders that will aim for 10 pips. or 20. We all know what that ends up with. I know that in a sense aiming for 10 isn't purely "random", but the price would be. It wouldn't be based on TA, it is based on a goal. Goals are good, but if there is no resistance for another 40 pips, then its an arbitrary figure.....kinda like being random I suppose.
Yes, I totally agree, it makes more sense to me to exit where there is some technical justification, whenever that's possible, rather than simply using arbitrary round numbers. Having apparent statistical backing also gives me greater confidence that I'm not simply responding to fleeting, speculative hunches.

David
  • #93
  • Edited 4:16pm Jul 17, 2007 3:56pm | Edited 4:16pm
Quoting clockwork71
Mr. Denmark,
I really have to agree with you on this 110%, as I think you and I are at least somewhat similar in our psychological approach to this. (Or maybe I should say "fears"?).....
Good luck all.
Clockwork, nice post. You've described very clearly many of the problems that I too (and no doubt every trader) faces. I am learning more and more to follow the trends on the charts, as opposed to listen to the opinions and commentaries of other traders. Many traders use both TA and FA; that's fine, but I find the more sources and methods I listen to, sometimes the more confused I get. If your trade was a breakout trade, and you have a breakout strategy, then IMHO it's important to stick with your plan. For every "expert" that believes price will rise, you can generally find one who believes it will fall. Diversity of opinion (willing buyer, willing seller) helps to create a market. Remember also that your mentor's sentiment, however personally relevant, is only one voice among the millions who are analyzing and trading, at any given point.

One other point that I submit for your consideration. As you so rightly point out, human nature wants to take profit early. And, even though it is bottom line that ultimately counts, human nature wants to make a profit (and be right!) on each individual trade. Not sure how relevant this might be to you, but I try to resist the temptation to move any protective stops to breakeven too quickly. I tell myself that if I trail it gradually, every 1 pip that it gets moved is improving my eventual monthly bottom line by 1 pip, regardless of whether it is above or below the entry point (i.e. in or out of the money). The "breakeven point" on an individual trade is a psychological, not a technical, barrier. Hence I don't believe it has much bearing on expectancy.

As I said in my previous post, I'm currently experimenting with scaling out using some profit targets, so this isn't quite as significant for me now. However, if/whenever I revert to a "pure" trailing stop approach, I try to keep it in mind.

David
  • #94
  • Jul 17, 2007 5:20pm Jul 17, 2007 5:20pm
Quoting clockwork71

I also am only trading with trend lines and fibos now. He thinks I am crazy, most people do, but I think I am on to something. Naked is good. We are born that way for a reason. It is to teach us how to be monster traders, I swear. : I believe you are mainly a fibo trader as well, which means you don't have 43,000 lines on the chart to make 10 pips.

Good luck all.
yes Clock, i trade with fibos, trendlines and candlestick formations that is popular on james16 forum.

breakout methods are fine with me, i just dont get to see them as often as i wish
100% of traders are losers. Just that some win more than they lose!
  • #95
  • Jul 18, 2007 9:19pm Jul 18, 2007 9:19pm
While exits and entries are both very important to maximizing profit in a trading system, exits are king when it comes to successful trades. With random entries, a good trader should still be able to be profitable on their trades (though not optimally so.) With random exits, there is no ability to control profit.

Imagine a random system of entries - the next time the phone rings, or you get an email, you enter a trade. If that happens in the top of the hour you go long, bottom of the hour you go short. But now you control the exit. Can you be profitable? A good trader will close bad positions immediately, scalp short trends, and ride out longer ones for profit.

Now imagine a well-managed entry system. You pick exactly where and when you should enter. But the exit is random - next time the phone rings or you get an email you close the position. What are the odds of profitability here?

Good exits can lead to success even when the entries are based solely "on a gut feel" as Trader888 says. But even the best entry won't help you if you bungle the exit, getting out too early or too late.

Q.E.D.. Okay, that phrase never applies on the Internet.
  • #96
  • Jul 18, 2007 9:24pm Jul 18, 2007 9:24pm
one more thing i noticed, Read the last line in my sig


for the record:A good trade hardly ever retraces back to entry, therefore let your profit run and trail it
100% of traders are losers. Just that some win more than they lose!
  • #97
  • Jul 18, 2007 10:05pm Jul 18, 2007 10:05pm
Quoting Mr demark
one more thing i noticed, Read the last line in my sig


for the record:A good trade hardly ever retraces back to entry, therefore let your profit run and trail it
Agree with Mr Demark
  • #98
  • Jul 19, 2007 5:55am Jul 19, 2007 5:55am
Thank you!!!!!!!!!!!!

That is the exact point I have been making this whole time!

Quoting brian_forex
While exits and entries are both very important to maximizing profit in a trading system, exits are king when it comes to successful trades. With random entries, a good trader should still be able to be profitable on their trades (though not optimally so.) With random exits, there is no ability to control profit.

Imagine a random system of entries - the next time the phone rings, or you get an email, you enter a trade. If that happens in the top of the hour you go long, bottom of the hour you go short. But now you control the exit. Can you be profitable? A good trader will close bad positions immediately, scalp short trends, and ride out longer ones for profit.

Now imagine a well-managed entry system. You pick exactly where and when you should enter. But the exit is random - next time the phone rings or you get an email you close the position. What are the odds of profitability here?

Good exits can lead to success even when the entries are based solely "on a gut feel" as Trader888 says. But even the best entry won't help you if you bungle the exit, getting out too early or too late.

Q.E.D.. Okay, that phrase never applies on the Internet.
  • #99
  • Jul 19, 2007 7:31am Jul 19, 2007 7:31am
The only problem of a random entry and/or exit is ...... nobody does that. At least nobody who wants to last past their 1st week of trading.

Coin flipping is purely an academic argument and the record of academia's move into trading (LTCM etc.) is not very good.

Although I agree a majority of traders place far too much importance on entries, not trying to gain an edge from the start of the trade is plain silly.

Sun Tzu "The best battle, is the battle that is won without being fought".

If you start off in the hole, yes a great entry can save you. But why do it that way?
  • #100
  • Jul 19, 2007 8:12am Jul 19, 2007 8:12am
in some point there is a .... "degree of freedom" (if i not mistakenly understand) i think i first saw this word in merlin post.

Do we misunderstand that randomness with this ?
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