TheBramble
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I’m currently doing an analysis of GOOG on another thread and part of that required me to codify a trailing stops strategy. I did that based on the specific dynamics of the instrument in question (GOOG) - how it has tended to perform in the past and where it is at this point in time.
I maintain this is the optimum way to construct all aspects of a trading position for any instrument. However, it is more time intensive than an automated or indicator based approach and while I’m going to stick to my guns on the way I now do it, there is room for considering a close approximation to a one-size-fits-all if you’re not obsessive about fine tuning your accuracy. So I’ll share with you for what it’s worth, and for want of a better term, an Inverse Volatility stop system I worked with on my way to getting to where I got to before I got to where I am now...
I’ve mentioned elsewhere that most tyro traders’ approach to using volatility as part of their stop constructions, if they’re not trading volatility specifically (and most tyro traders don’t) is quite opposite to what it should be. When volatility expands, most take this as a sign to exit their positions when in fact, they should be hanging back and allowing the price some room. The time to come on in hard on the action is when volatility slackens after a bout of excitement. You only have to think about the basis of volatility and volume for this to become obvious.
When you’re looking to fine tune your exits based on dynamic development of price and volume, you have to put yourself in the position of those who actually do move the markets (those who ARE Volatility and Volume). They have a view of ‘both sides’ of the market. Something you and I do not have. So when they are seen to be active (and as importantly, when they are seen to have withdrawn their active involvement) it is a sign that you need to be paying attention.
The contexts you need to be looking at are recent price action (flat, rising, falling); where the close is occurring on the bar/candle in your timeframe of choice; what the volume has been and is now and; what the high-low range has been and is now. All of these give vital clues to professional involvement and as importantly, lack of professional involvement.
I personally use this rather more dynamic and pro-centric approach to my final exit determination rather than genuinely fixed trailing stops which if I can find a way to describe that which doesn’t take another War & Peace type post, I will do so.
I started off this line of enquiry and research a while ago and a post of mine on this site somewhere went into some detail defining what factors and data I was starting to work with, but I haven’t the foggiest where it is now. However, I’ll update you on how I have developed these lines of thought in further posts as and when I get the time.
I maintain this is the optimum way to construct all aspects of a trading position for any instrument. However, it is more time intensive than an automated or indicator based approach and while I’m going to stick to my guns on the way I now do it, there is room for considering a close approximation to a one-size-fits-all if you’re not obsessive about fine tuning your accuracy. So I’ll share with you for what it’s worth, and for want of a better term, an Inverse Volatility stop system I worked with on my way to getting to where I got to before I got to where I am now...
I’ve mentioned elsewhere that most tyro traders’ approach to using volatility as part of their stop constructions, if they’re not trading volatility specifically (and most tyro traders don’t) is quite opposite to what it should be. When volatility expands, most take this as a sign to exit their positions when in fact, they should be hanging back and allowing the price some room. The time to come on in hard on the action is when volatility slackens after a bout of excitement. You only have to think about the basis of volatility and volume for this to become obvious.
When you’re looking to fine tune your exits based on dynamic development of price and volume, you have to put yourself in the position of those who actually do move the markets (those who ARE Volatility and Volume). They have a view of ‘both sides’ of the market. Something you and I do not have. So when they are seen to be active (and as importantly, when they are seen to have withdrawn their active involvement) it is a sign that you need to be paying attention.
The contexts you need to be looking at are recent price action (flat, rising, falling); where the close is occurring on the bar/candle in your timeframe of choice; what the volume has been and is now and; what the high-low range has been and is now. All of these give vital clues to professional involvement and as importantly, lack of professional involvement.
I personally use this rather more dynamic and pro-centric approach to my final exit determination rather than genuinely fixed trailing stops which if I can find a way to describe that which doesn’t take another War & Peace type post, I will do so.
I started off this line of enquiry and research a while ago and a post of mine on this site somewhere went into some detail defining what factors and data I was starting to work with, but I haven’t the foggiest where it is now. However, I’ll update you on how I have developed these lines of thought in further posts as and when I get the time.