Exits Are Entries, Just Upside Down

[firewalker 10]

  wasp said:

No, no, no, no, no!

 

Exits shouldn't be haphazard guesswork with scaling out and hoping for the best.

 

Entries and exits are equally important and as much effort should be made to ensure your exit is as near perfect as your entry. Until you can contently exit with near certainty that it won't continue, keep working at it.

 

People try to get the best entry using the minimal required stoploss and the same should be for exits.

 

I said "You can just leave one car on till EOD and say to hell with it, move your stop breakeven and see what happens." Obviously that's not the best way to trade because you're not applying an exit strategy, but I was surprised myself to see how many times that would've actually been a more profitable way to approach the exit then just exit on the first sign of trouble.

 

I agree that exits are important, but that doesn't mean you can always determine when "it won't continue". Take a look at the chart I just posted. There were several times where I thought "hmm this isn't going to continue lower this is chop", yet near the end of the day price did fall back all the way to support.

 

But it took considerable time... that's why I said "to hell with it" referring to anything that happens in between your entry and your exit, if you have things planned out AND if you know what you are looking for (which can be S/R, fibs, a fixed target, a trendline break, a time signal, a price target based on the ATR, etc, etc).

 

Imo, if you focus on one single exit, you'll never catch the big swings. I know you manage to catch each swing almost by surgical precision, but you can get yourself seriously burnt when you end up reversing and reversing in choppy circumstances...

[wasp 10]

  firewalker said:

I said "You can just leave one car on till EOD and say to hell with it, move your stop breakeven and see what happens." Obviously that's not the best way to trade because you're not applying an exit strategy, but I was surprised myself to see how many times that would've actually been a more profitable way to approach the exit then just exit on the first sign of trouble.

 

I agree that exits are important, but that doesn't mean you can always determine when "it won't continue". Take a look at the chart I just posted. There were several times where I thought "hmm this isn't going to continue lower this is chop", yet near the end of the day price did fall back all the way to support.

 

But it took considerable time... that's why I said "to hell with it" referring to anything that happens in between your entry and your exit, if you have things planned out AND if you know what you are looking for.

 

Imo, if you focus on one single exit, you'll never catch the big swings. I know you manage to catch each swing almost by surgical precision, but you can get yourself seriously burnt when you end up reversing and reversing in choppy circumstances...

 

 

When you look to enter into a trade. One of the main things you concentrate on is getting in when it will go against your entry the least. Why should it be any different for an exit?

[firewalker 10]

  wasp said:

When you look to enter into a trade. One of the main things you concentrate on is getting in when it will go against your entry the least. Why should it be any different for an exit?

 

No, I agree, if you get the entry right you should try to squeeze out as much points as possible. But if just don't think there's a simple way to accommodate for the market dynamics. You can never know for sure if price is actually going to travel from one end of the range to the opposite. But you can manage your profits, with your eye on the big prize, not afraid to settle for 2nd prize when the odds of winning fall below your threshold...

[wasp 10]

  firewalker said:

No, I agree, if you get the entry right you should try to squeeze out as much points as possible. But if just don't think there's a simple way to accommodate for the market dynamics. You can never know for sure if price is actually going to travel from one end of the range to the opposite. But you can manage your profits, with your eye on the big prize, not afraid to settle for 2nd prize when the odds of winning fall below your threshold...

 

You are missing my point FW. Its not about getting the 'maximum of the range' and 'squeezing out profits' but treating the exit with as much respect and thought as the entry. You don't scale into your entry do you? You get in full confidence that a high % chance it is the best possible point (the high or low). The same thing should be for the exit imo.

[firewalker 10]

  wasp said:

You are missing my point FW. Its not about getting the 'maximum of the range' and 'squeezing out profits' but treating the exit with as much respect and thought as the entry. You don't scale into your entry do you? You get in full confidence that a high % chance it is the best possible point (the high or low). The same thing should be for the exit imo.

 

Why don't say so straight away that you were advocating an "all in-all out" strategy :o

As for not scaling in, that's true. A lot of people would advocate that pyramiding is a better strategy in the long run though.

 

Your idea would be nice, in theory. But in reality, you enter a trade and you see if or not price starts going in the favourable direction. In reality, where would you have exited that short (see chart I posted)?

 

Once you're in a profitable position, you're no longer viewing the exit as an entry. Suppose you have 10 points, do you want to risk giving up 10 if there's a 50% chance to gain another 10? What if there's a 33% to gain another 40? You might argue that you have no way of knowing these chances, but that's another case.

 

Over the long run, it's what you feel comfortable trading with that matters. Some people have no problem seeing 5 profitable trades return to breakeven, but I do. I'd rather take my 10, leave a small position on, but run for the exit in case the market fails to continue (this leaves the possibility for re-entry).

 

But this isn't about me, this is jason's thread

[wasp 10]

Yes you are correct and I think it best if we wait to see what Jason wants and continue this on the trade discussion thread rather than derail this one.

[wasp 10]

To continue and stop derailing Jasons thread.

 

IMO, the exit should take on the same criteria as the entry. ie, as close to the high/low as possible and with minimal movement against ones position.

 

I don't agree in scaling out and think the exit should be considered as carefully as the entry and perfected as such.

 

To scale out is to admit ignorance and how one can justify emphasis and such detailed thought on entry only to leave the exit to chance is bizarre imo.

[firewalker 10]

  wasp said:

To continue and stop derailing Jasons thread.

 

IMO, the exit should take on the same criteria as the entry. ie, as close to the high/low as possible and with minimal movement against ones position.

 

I don't agree in scaling out and think the exit should be considered as carefully as the entry and perfected as such.

 

To scale out is to admit ignorance and how one can justify emphasis and such detailed thought on entry only to leave the exit to chance is bizarre imo.

 

Well, there are two things you are saying.

 

First, leaving the exit over the chance is not what scaling out is about. In fact, scaling out is anything but chance because you have determined beforehand at what point you will exit a part of your position. This may be for several reasons, a break of trendline, a predetermined fixed target or something else.

 

Second, when you enter you have your stop to protect you in case you are wrong. When you exit, and price goes further in the right direction, there is only hindsight to say that you exited too early.

 

Imo there is no way in knowing with 100% certainty what is going to happen after you exit, the same way there is no way in knowing for sure what price is going to do. But you can be 90% sure perhaps. Which doesn't change the fact that pinpointing the optimum exit isn't an easy feat. Because how do you define optimum? Is it the farthest price has traveled during that way? What about overnight?

 

More important imo is the potential reward versus the risk of getting out with nothing and giving back all your profits. Over the long run that will determine the net profitability of your strategy...

[wasp 10]

  firewalker said:

Well, there are two things you are saying.

 

First, leaving the exit over the chance is not what scaling out is about. In fact, scaling out is anything but chance because you have determined beforehand at what point you will exit a part of your position. This may be for several reasons, a break of trendline, a predetermined fixed target or something else.

 

Second, when you enter you have your stop to protect you in case you are wrong. When you exit, and price goes further in the right direction, there is only hindsight to say that you exited too early.

 

Imo there is no way in knowing with 100% certainty what is going to happen after you exit, the same way there is no way in knowing for sure what price is going to do. But you can be 90% sure perhaps. Which doesn't change the fact that pinpointing the optimum exit isn't an easy feat. Because how do you define optimum? Is it the farthest price has traveled during that way? What about overnight?

 

More important imo is the potential reward versus the risk of getting out with nothing and giving back all your profits. Over the long run that will determine the net profitability of your strategy...

 

I think the crux f my point here is.......

 

'if I exit now, would I enter?'

 

Yes, you can't be sure when it will end, nor can you be sure if your entry will be spot on and it won't continue as before and hit your stop. Scaling out isn't guesswork, I apologise but, nor is it good practise imo.

 

You cannot be sure what will happen over the next 5, 10, 15 minutes whether it is an entry or an exit of course but it pays in the long run to get the maximum out you can and I think the above quote should always be in a traders mind when exiting.

 

To scale out so you don't miss out on points is fear and when viewed professionally, one must remove that fear and think of the bottom line, maximum profit with minimal risk. Granted, use a sensible reasoning to trail stoploss to breakeven to remove the risk but from there on, it should all be maximum profits.

[Bearbull 10]

Guys it would be a lot easier to follow this discussion if there were some illustrations to go with it IMHO:)

[firewalker 10]

  Bearbull said:

Guys it would be a lot easier to follow this discussion if there were some illustrations to go with it IMHO:)

 

Well it started with a chart I posted in Jay's Journal.

Might as well copy it over here

 

 

I had a short signal around 1527 on the NQ (first red dot). I moved my stop to BE rather soon but equally soon I got stopped out. But I shorted again several minutes later (second red dot). Support was at or around 1500. I figured with price already having fallen so much it would be unlikely to drop like a stone straight away. I've drawn some lines to show momentum and possible exits (at the breach of the line). When the second line broke, price rallied shortly but fast enough to come very close to my entry point. As you can see on my chart, it took my about 3 hours to get where I wanted.

 

There's the obvious trade-off between bigger profits and staying in a trade risking getting stopped out BE. Price swung wildly between 1527 and 1500 several times. If I were to put a trade on in between those levels, I'd risk getting whipsawed easily. You could say I got lucky this time that price traveled all the way to the opposite of the range. But it doesn't happen that frequently. In fact, during the summer months I'd get stopped out BE far too many times to my liking! The only way to cope for that imo, is to scale out for little profits first: perhaps only a handful of points, but at least that covers commission...

 

If I understand wasp correctly, he's saying I should only have exited at 1500 and scaling out only diminished my profits. My argument is that if I were to do that each time, I'd end up with a lot of breakeven trades and zero profits.

[Bearbull 10]

  Quote

 

 

How can one know in advance that the price will move to 1500, perhaps Wasp can elaborate with a concrete example.

[Bearbull 10]

o.k here is chart of GBPJPY

 

Lets assume a trade was taken in the price zone indicated by the first red arrow, then say the exit was at the double top formation, 2nd arrow depending on how the trade was managed, although there was no way knowing the market would get there.

 

Now lets say the 2nd arrow provided an Entry, how do we know in advance it is going to reach the level at the 3rd arrow and unless a very wide stoploss is implemented the trade is sure going to be stopped out.

[wasp 10]

Sorry, will reply but turning into a manic day (trading aside) so will do soon as...

[jasont 10]

There has been some great discussion in this thread already however I do believe there is a bit of confusion in regards to intended outcomes. From what I have seen Firewalker, you attempt to stick with trades through the ups and downs of the market. Correct me if I am wrong but if you enter at a resistance point, you try to ride that trade through ups and downs until it reaches your support area.

 

However I get the feeling that Wasp tends to trade in the direction of a move until it signals it isn't willing to go in that direction for that move any longer. Wasp please correct me if I am wrong.

 

Now the difference between the two types of trading would be (per the chart posted by Firewalker using the same entry) doing as Firewalker did and holding the trade through the retracement that occurred at roughly 18:16. However the other way could be taking an exit at either 18:05 or 18:10 depending on the trailing stop rules. Then attempting to enter again at 18:16 for a continuation of the downward move.

 

I'm not saying one way is better than the other. I do personally believe it is easier to see the end of a move if you're only going for the second style of exit rather than the one that holds on for pullbacks.

 

I could be wrong about both of my assumptions on how Firewalker and Wasp treat exiting the market and please correct me if I am wrong guys. Just from where I sit there does seem to be a difference with what each of you are attempting to pull out of the market. Hence why there is a little confusion.

[Bearbull 10]

  jasont said:

However I get the feeling that Wasp tends to trade in the direction of a move until it signals it isn't willing to go in that direction for that move any longer. Wasp please correct me if I am wrong.

 

I'm not saying one way is better than the other. I do personally believe it is easier to see the end of a move if you're only going for the second style of exit rather than the one that holds on for pullbacks.

 

I could be wrong about both of my assumptions on how Firewalker and Wasp treat exiting the market and please correct me if I am wrong guys. Just from where I sit there does seem to be a difference with what each of you are attempting to pull out of the market. Hence why there is a little confusion.

 

1. "To trade in the direction of a move until it signals it isn't willing to go in that direction", what method is employed to determine this on a consistent basis?

 

2. There would be no confusion, if 2 examples are posted with entry and exit. That would surely end all this lengthy discussions,

 

and less to read, afterall a picture is worth thousand words.......

[wasp 10]

Here is my take on the GBPJPY chart. Does that make sense?

[jasont 10]

  Quote

1. "To trade in the direction of a move until it signals it isn't willing to go in that direction", what method is employed to determine this on a consistent basis?

 

BearBull, to me that would mean looking at the same things one does for an entry. For me I often find a contraction in price ranges accompanied by large volume a good sign the market has had enough of it's current move.

 

Then again it depends on what one calls a current move. It could be the extent of a move on the 1 minute chart which is what I tend to use or it could be the extent of a move on a daily chart. I have found recently that trailing a stop at a tick beneath/above the previous candle high/low tends to make good work of that but am still growing the stats on that through back testing. Not really much different from drawing a trend line on a one minute chart and exiting at a break of that.

 

I guess something which might get some discussion is the choice between holding through the ups and downs or taking an exit where we begin to turn and enter again should there be another leg. I'm not on my own PC right now so I can't give a picture example unfortunately.

 

My view, taking the currency example Wasp annotated, using the same entries, is that prior to 3pm (after the first entry) there are signs we are not wanting to continue the move right away. I would rather take profits and then if we show signs of continuing risk another position to see if the move continues.

 

Another example from the same chart by Wasp is the second entry. Say entered there, there is strong evidence that we will pull back at 185.3-185.8. Taking an exit in there and then taking another on signs of a continuation avoids the possibility that the down move was a pullback in a larger moving up trend.

 

However the larger majority seem to rather keep their position on through a pullback which often times is bigger than a stop loss they would ordinarily use. It brings an interesting discussion here because people tend to treat holding on to a winning position through a pullback different to entering a new position. Just something I don't necessarily find good or bad but interesting as I prefer the 1st approach. Every one of course has different approaches which allows us to have a market.

[firewalker 10]

  jasont said:

There has been some great discussion in this thread already however I do believe there is a bit of confusion in regards to intended outcomes. From what I have seen Firewalker, you attempt to stick with trades through the ups and downs of the market. Correct me if I am wrong but if you enter at a resistance point, you try to ride that trade through ups and downs until it reaches your support area.

 

Yes I think that sums it up correctly. The problem with riding price from R to S or the other way around is that it requires patience and sitting through chop sometimes. It also means you can get stopped out BE and have to re-enter while giving back several points. Since I prefer to take only a handful of trades per day, I don't really care about all the little directional moves in between S and R, because for me they are more difficult to trade and require a wider stop.

 

  jasont said:

However I get the feeling that Wasp tends to trade in the direction of a move until it signals it isn't willing to go in that direction for that move any longer. Wasp please correct me if I am wrong.

 

Since wasp is nearly always in the market, it is indeed a different approach... his exit is usually an entry!

 

  Bearbull said:

2. There would be no confusion, if 2 examples are posted with entry and exit. That would surely end all this lengthy discussions,

 

and less to read, afterall a picture is worth thousand words.......

 

I posted my chart with my trades (or how I would approach it) in post #11. It's up to wasp now to show me his entries/exits there

[firewalker 10]

  wasp said:

Here is my take on the GBPJPY chart. Does that make sense?

 

Comments: see chart...

 

I think we can both find examples where scaling out is the better way, but we can also find examples where staying in is the safest thing to do.

 

Edited October 4, 2008 by firewalker

[wasp 10]

  firewalker said:

Comments: see chart...

 

I think we can both find examples where scaling out is the better way, but we can also find examples where staying in is the safest thing to do.

 

 

Yep. my original annotation showed that, had it done what you said and it had gone up, then scaling out would have been better.

 

That's where all the hard work and backtesting etc comes into fruition as you should know your market and how likely it is to do one or the other.

 

I'll annotate your chart later but tad busy.

[firewalker 10]

  jasont said:

However the larger majority seem to rather keep their position on through a pullback which often times is bigger than a stop loss they would ordinarily use. It brings an interesting discussion here because people tend to treat holding on to a winning position through a pullback different to entering a new position. Just something I don't necessarily find good or bad but interesting as I prefer the 1st approach. Every one of course has different approaches which allows us to have a market.

 

That's a good observation... I guess we do perceive potential reward differently once we have 'money in the bank'. But a lot depends on context imo. If we, from previous experience or from reading price action as it unfolds minute per minute, can determine the odds are still in our favour that price will continue in the favourable direction, than why exit?

[Kiwi 16]

  wasp said:

When you look to enter into a trade. One of the main things you concentrate on is getting in when it will go against your entry the least. Why should it be any different for an exit?

 

A good question. And the answer is ... drum roll ...

 

because the purpose of an entry is different to that of an exit. :crap:

 

 

At least, that is how I treat them. I enter when I have a high probability that a move will continue in the direction (and magnitude) of my target before it falls back in the direction (and magnitude) of my stop loss. So an entry is about probabilty*magnitude of target move minus or divided by probability*magnitude of loss move.

 

An exit on the other hand has different aims. My exit is essentially based on a high probability that the planned forward motion is ending (but much lower than the probability required for me to enter).

 

I take (repeated) chunks out of trends so my entry is with the trend, has the above probabilities and is taken cautiously. My exit is "against the trend", doesn't care if there is trend continuation afterwards (I'll either catch it or not) and is taken with the enthusiasm of a long time profit enjoyer.

[jasont 10]

  Quote

That's a good observation... I guess we do perceive potential reward differently once we have 'money in the bank'. But a lot depends on context imo. If we, from previous experience or from reading price action as it unfolds minute per minute, can determine the odds are still in our favor that price will continue in the favorable direction, than why exit?

 

For me the best answer is because you can possibly take more than 10 points out of a 10 point move. We have all no doubt seen big trending days, lets say its a trend up day. Say you enter the market at 1130 and we begin by moving up say 6 points in the initial mark up/buy up/momentum move. At this point you see some signs of a pullback and know from past experience that a small pullback is likely before continuing higher.

 

Instead of holding on through the pullback that you feel is likely to be nothing more than a small retracement though nothing is certain, you decide to take profits at 1135 for a gain of 5 points. You then wait for the pullback you were anticipating and identify the point it will likely reach. Say it comes back 3.5 points at which stage you enter again maybe at 1133. The market then continues up to a resistance point it cannot break at 1140. You take profits at say 1139.

 

Holding on through the pullback would have netted you a gain of 9 points. The risk of holding on was the possibility of netting nothing should one leave their stop at b/e waiting for resistance to be hit. I'd imagine some sort of trail would be used though however for this example we will leave it at break even whilst waiting for resistance to be met. Now the risk at the peak of the initial move up to 1136 was 6 points as one left their stop at break even. I'm assuming that is larger than most accept on a regular stop point.

 

Now the trader who took the initial gains at 1135 and then entered again at 1133 to take the next exit at 1139 has netted 11 points. At the same time this trader has risked their initial stop amount up front, and then when entering again at 1133, would risk the normal stop amount again. This trader's risk however is that they miss the following move should their plan not permit them to re-enter.

 

The above is just a theoretical and can be skewed for the advantage of the trader who buys at support and holds until resistance or can be skewed to the trader who buys, takes an exit and buys again.

 

In all honesty it really comes down to the trader personality and their style of trading. Can I suggest that we possibly put up ideas for traders (such as myself, though I currently feel I have a good solution I am building) in ways to fine tune their exits?

 

I have gone with something simple for the moment which may require more work however I will suggest it anyway. For a way to take the most out of a current move, trailing the stop according to the previous candle low/high seems pretty good.

 

The plus side to this is that during mark up phases we shoot up/down pretty quickly without breaching the previous candle's high/low. We often contract in candle range toward the top/bottom of the current move and that often allows the stop to be brought up in close proximity of the actual top/bottom.

 

The downfall of such a way to exit is that during choppy markets one can get taken out pretty easily. Therefore the ability to pick up on choppy circumstances is necessary to keep one out of unfavorable markets. It also requires one to have a good entry plan. A breakout model, though I don't trade breakouts, may not gather many points as often half a move is made prior to breakout.

 

Any other guys willing to offer suggestions for exiting methods to other traders?

[firewalker 10]

  Bearbull said:

and less to read, afterall a picture is worth thousand words.......

 

As requested, some more charts to spice things up

 

This is the DOW as per yesterday, October 3rd. Comments on the charts.