Exit Stratgies 2 - A specific question

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alichambers
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Exit Stratgies 2 - A specific question

Postby alichambers » Tue Oct 16, 2007 1:57 pm

Hello,

This is following on from Peter's post on Exit Strategies, Tue May 22 2007. I have a specific example I'd like to discuss.

Below is YM yesterday, 1 min: a great day for shorting:





I shorted at A. 14:30 is market open, UK time

I took 50% of my profits at B (10-15 point TP)

My question is around what to do with the other 50%.

The market quickly retracted from B to A - my entry price. It was here that I got nervous - do I sell with just 50% profits from my TP, or gamble and see what happens.

Luckily the price quickly turned around from A, and I did well that day with my hold "gamble".

However, I have seen plenty of other days when the price didn't turn around after the retracement from B to A, and started going up - wiping out my TP profits by the time I sold.

So I'm interested to see what everyone else would have done ... sell 100% at B (TP) and take the safe 10 points but lose the massive drop after? Or enter again when the price dropped below B? Or otherwise.


Many thanks,
Alex

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lutra
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Postby lutra » Tue Oct 16, 2007 4:14 pm

HI Ali,
Having read and heard many opinions over the years I have joined the protect what you got camp. My preferred entry in equities or futures is three lots. I then use Support and Resistance or Fib extensions if we are moving into uncharted territory for targets and stop.
I set the stop and three exits. As soon as the first profit target is hit, I move the stop to break even or a major pivot which ever looks better. After the second target is hit the stop is set to trail pivots and the final exit is no longer fixed in case it is a home run.
Had you been stopped out of your trade yesterday there were many opportunities to reenter on your chart. I notice a sell setup at 14.45 and again at about 15.05.
Since most of the days are not trending days it is better to just take what is offered and not to be to greedy.
The other advantage is, that having a plan and playing by it without any second guessing or hoping reduces tension and anxiety, being nervous in a trade blinds you to the overall picture and you will tend to see things you are wishing for.
Hope it helps,

alichambers
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Postby alichambers » Tue Oct 16, 2007 8:25 pm

Hi Lutra,

Thanks - that does help. Use your TP, and you can always re-enter the trade if the trade ends up trending (not always the case).

Your re-entry strategy: for a short - do you use new lows from a prior pivot, as pointed out on the chart?

AC

rrobin
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Postby rrobin » Wed Oct 17, 2007 11:22 am

Do you have a trading plan?

If your daily profit goal is hit you can do as you please.

rr

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Postby jhtumblin » Wed Oct 17, 2007 12:36 pm

Here is my question to you Ali: Why didn't you dump 100% at target B the first time around? If you had, you wouldn't have to worry about the price retracement at all not to mention be ~12 pts x position richer. Then if you see an opportunity for re-entry take it.

There are some statistics somewhere in these forums that prove taking partial profits is not beneficial to your account. I think 4x=0 did it but a search will make them available.

I have a rule in my personal toolbox that states; "When in doubt, get the h*ll out." It certainly sounds to me like you were doubting your position after you took your initial profits and like you said did well with your "gamble". I'm glad it worked out for you but why gamble when there was guaranteed money on the table?

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Postby lutra » Thu Oct 18, 2007 12:42 am

This would have been my re-entry points.
Attachments
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4x=0
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Postby 4x=0 » Sun Oct 21, 2007 4:53 pm

A month or so ago, I asked a similar question about when to take profits. I'll repost my question and the answer I received from a profitable/experienced trader.

Question: "Hello, I am an inexperienced treader who has suddenly become lost. I understand entries so far more and more but now 'what do i do?'. One thought is to take some profit at resistance. then the greedy side says, no this is going up. keep your 1 lot in tact. i have 3% at risk. what is the best next course of action? i could let it ride for ever i don't care, but i would like to know the professional approach to this."

Answer: "I hope I won't confuse you, but I disagree with what some of the others are saying here. It does not make any mathematical sense to take partial profit. What you should do, and you can make the calculations yourself, is to add to your winning positions until you get a reversal signal. Say you start out with 2 positions on aussie. You buy around 8275 and you take half profit at restence 8345. You close out +70 pips. You let the other half run until you hit a reversal signal and close around 8405. You made +130 pips on this second half, a total of +200 pips. Brilliant! But what if you added to your winning position instead. You have t2 longs from 8275 on the break of the res,. Day closes and you place a buy order for 1 new addon long when a new daily high is reached, around 8345. Stop on your first two positions are moved to break even so in effect you have cut your risk in half, but increased your position by 50%! So we exit on the same level of res/reversal signal at 8405. So you book +260 pips from your 2 original entries and another +60 from your addon position, a toal of +320 pips or +120 pips more equivalent to +60% more profit. Is this hard to do? I don't think so. It's a matter of perspective and how well you can control your own greed. When you get to the point where you don't care if a 100 pips trade stops you out at break even because you know the next trend you catch will give you 5 times as much... you can relax and just let your winning trades run free."

I like this perspective and I use it too. At the same time, I see the value of taking profits (partial) when they are available for taking, and let the rest run free. It depends on your level of experience; identifying when to use either method.

The discretionary exit stratagem that I've placed on the forum takes advantage of this attitude of moving stop to BE after TP1 and not caring about the rest. Once the SECOND release of the new EFX platform is available, (the first has yet to be released (was supposed to be out last quarter of 2006)) I will be able to automate the take profit/stop moving and will then be free to use much shorter stops. Stay tuned.

In the end, both methods work -- one thing you don't want to do is let that remaining position go against you. that would be silly.

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