Developing your own system

[Chorlton]

Chorlton, I thinkI know what you are saying, ie whether you get your trade in at the exact entry point you desire, or 1,2 or 5 points away doesn't matter, as long as you trade it well and exit properly. I understand that, and agree. But the post above clearly counts as well. If your entry is completely wrong surely money management, position sizing etc won't help, (although with a stop you won't get hurt as badly as above!)

... and thats basically the Exit isn't it ?? At the end of the day, the aim for us all is to skew the numbers in our favour. We want a positive expectancy from our strategy ,so as to allow us to accumulate profits over time.

The only way to achieve this is to "cut losses quickly while letting the profits run". I know this is an old saying used many, many times but I would guess that not everyone who knows this phrase actually knows have to implement it correctly.

All IMO.

Chorlton

 

[Chorlton]

Again, I'm confused. How can you have a trend based system that doesn't rely heavily on entry? The essence of the system is that it enters on a trend......no?

UTB

Say you have a Tread-Following Long-Term system. Does it really matter to you whether you enter EXACTLY on one specific bar or the next few bars? In the grand scheme of things you are entering on the trend. The point will be to capture long-term trends, will it not? But a lot of newbies (not that I'm saying you are) would spend hours tweaking this to achieve the "ultimate" entry while not spending any time on knowing how they will exit the position or worse still not knowing have much risk they are prepared to take on the trade.

But if you don't have the right MM and Position Sizing rules you could lose money over time. The same goes for the stop.

If you have developed an exit which for whatever reason stops you out prematurely on a regular basis then you will never make a large enough profit to offset those trades which lose money, resulting in a negative expectancy.

There's another well-known saying that "you will never go broke taking a profit!" Alas, this could not be further from the truth!!

Maybe I'm not explaining myself too well as I'm trying to multi-task here and clearly failing If I haven't though, let me know...

regards,

Chorlton

 

[the blades]

The only way to achieve this is to "cut losses quickly while letting the profits run". I

I'm sure you'd agree that stops hurt most systems. As such, I don't agree with your statement. I trade without stops (and would be considered insane by 99% of T2W public) and use multiple systems hedged against the broader market, to reduce risk. That's probably why I find entry such an important part of the trade.

UTB

 

[Stuart14]

Interesting discussion guys. Certainly agree about Money Management and position sizing, but each surely come down to rules set up at the beginning of the system? ie. Each position equal 1% of bank, with stop losses placed x pips away from entry. The size of the stop dictates the size of the trade, so in total 1% bank is on the line???

Also think entry has to be chosen well. Maybe not to the exact pip (which is the point I think Chorlton is making) but if you can't get the entry that fits the system you shouldn't take the trade at all.

No?

 

[Chorlton]

I'm sure you'd agree that stops hurt most systems.

Actually IMO it depends on the Stop being employed. The worst type would be the "initial" stop as you have maximum risk at that point. The other type which hurts "Trend-Following" systems is the "Target" Stop although, it is clear with Short-Term Mean Reversal systems that this stop is vital.

As such, I don't agree with your statement. I trade without stops (and would be considered insane by 99% of T2W public) and use multiple systems hedged against the broader market, to reduce risk. That's probably why I find entry such an important part of the trade
UTB

Actually Blades you do trade with a stop.... Isn't a "Target" Exit a type of Stop?

Seriously though, I did make it clear at the start of this discussion that my views were based on my type of trading. At the end of the day, as long as we are all happy & have confidence with our own approaches, then thats all that matters. :cheesy:

Afterall, thats what makes Trading so interesting.....

 

[the blades]

Actually IMO it depends on the Stop being employed. The worst type would be the "initial" stop as you have maximum risk at that point. The other type which hurts "Trend-Following" systems is the "Target" Stop although, it is clear with Short-Term systems that this stop is vital.



Actually Blades you do trade with a stop.... Isn't a "Target" Exit a type of Stop?

Seriously though, I did make it clear at the start of this discussion that my views were based on my type of trading. At the end of the day, as long as we are all happy & have confidence with our own approaches, then thats all that matters. :cheesy:

Afterall, that what makes Trading so interesting.....

absolutely, I'm not picking a fight or even disagreeing as such - I think it's all shades of grey....to some degree


UTB

 

[Chorlton]

absolutely, I'm not picking a fight or even disagreeing as such - I think it's all shades of grey....to some degree

Neither am I Blades so no worries. :cheesy: IMO its good to discuss things as I think it helps to either reinforce our own beliefs or makes us question certain aspects of it which can only be a good thing

Just to correct something - I don't use tragets either (95% of the time). I use rotational methods and periodic rebalancing based on the highest ranking candidates.

You've got me here Blades. Can I ask what rotational methods and periodic rebalancing is all about, as I've never of it. I can take a guess but would welcome your comments.

You might be referring to the other thread which has an exit based on closing above a moving average? I'm far from committing money to that system, though I like the idea behind it.

Yes, you are indeed correct. I haven't had any time to continue looking at it but will once I complete some other urgent tasks.....

Kind Regards,

Chorlton

 

[the blades]

Neither am I Blades so no worries. :cheesy: IMO its good to discuss things as I think it helps to either reinforce our own beliefs or makes us question certain aspects of it which can only be a good thing



You've got me here Blades. Can I ask what rotational methods and periodic rebalancing is all about, as I've never of it. I can take a guess but would welcome your comments.



Yes, you are indeed correct. I haven't had any time to continue looking at it but will once I complete some other urgent tasks.....

Kind Regards,

Chorlton

to be fair I scrubbed my post because my heads spinning so much that I was talking crap, as usual. I do use targets, but only when other methods have determined I'm due to exit.

re my "rotational method", let's say;

Your portfolio size is 10 stocks (or whatever)
Your method is to pick stocks with high relative strength
You'd rank all stocks in your universe in order of this measure
You'd buy the top 10
You hold for a period, TBD (in my case 1 week for some systems, 4 weeks for some, and 12 weeks for one)
After that period, you re-rank and adjust the portfolio accordingly in order to hold the top 10.


Nothing new in any of this, and probably the name I've given it has confused you?

UTB