The Asymmetric Nature of Entries & Exits

[Mr. Charts]

Purple Brain,
FWIW I'll post some comments on this subject when I get some time.
Nice clean thread !
Richard

 

[robster970]

Thanks Mr. Charts. I can see consensus building that asymmetric entry/exit is probably not only normal, but derived from necessity rather than any artificial model.

Be interesting to see if teh hare has an opinion (that he is prepared to share) on this given his random entry system although I am pretty sure he isn't using a random exit, thereby demonstrating asymmetric behaviour.

 

[tar]

No, I wasn’t talking about the psychological aspects of managing or exiting winning/losing trades. I meant that regardless of the profit or loss of the trade or how long it has been running, I exit when I ‘should’ exit and that simply requires any one (or more) exit criteria to exist. Just one will do though. For an entry I have a considerable number of factors which must co-exist for me to take the trade. Depending on the type of trade it can be as few as 7 disparate entities. That is my point: I need at least 7 ‘things’ to support an entry but only one to exit.

Comes to mind the "always-in" approach which is traded by some : If you don't have a reason to exit -beside an arbitrary number- then why not stay in , and if you have a reason to exit then why not reverse .

 

[Purple Brain]

That’s a really interesting point. My normal entry criteria tend to get me in when it’s obvious there’s a move in progress, by which I mean you could probably just look at the slope and clearly see where it’s headed without need for any other indicators at all. And of course by which time when you look back after the entire move is over you realise you got in well into the move. I really don’t mind that at all in principle if that’s what it takes to be more certain than not. And when I look at my normal exits, sure I get out too early more often than not, but overall, I’m reasonably happy. It’s when I started this exercise and modelled the method where I need as much confirmation criteria to get out as get in that I ended up giving back the same sort of amount of move I ‘give up’ on entry as I do on exit, almost doubling my lost opportunity. (Need something similar to MAE and MFE to define that.) But you’re quite right tar, when I do that, I am into a trade in the other direction.

 

[Purple Brain]

Research concluded. Seems to me you either get in early on the expectation and run the risk of getting a false start on some and the longer run on the winners or wait for confirmation and get in later and get more winners but run the risk of a short term close out for little to no or negative profit. The P&L don’t really tell the whole story. The only safety net or edge we appear to have is to have a close stop and have winners that yield at least as many pips as the losers with at least as many winners at losers. Doesn’t seem like rocket science. Unlikely I’ve found the holy grail. What am I missing?

 

[Purple Brain]

Almost forgot. The trades I’ve made during this research period for which have had a real edge (as per P&L) have been those in which I’ve had the most confidence. Doesn’t matter if they’ve been complex in complex out or simple in and simple out or any combination thereof. If it’s been obvious, it’s gone a lot further than the borderline entry and exits. Does this matter more than any technical aspect of trading? To simply take only those trades that seem most obvious? Those that tend well?

 

[robster970]

Research concluded. Seems to me you either get in early on the expectation and run the risk of getting a false start on some and the longer run on the winners or wait for confirmation and get in later and get more winners but run the risk of a short term close out for little to no or negative profit. The P&L don’t really tell the whole story. The only safety net or edge we appear to have is to have a close stop and have winners that yield at least as many pips as the losers with at least as many winners at losers. Doesn’t seem like rocket science. Unlikely I’ve found the holy grail. What am I missing?

The earlier you get into a move, the more risk you carry but the greater the reward. If you wait for confirmations, the move has probably already left the station, carries a lower risk but also a lower reward. No grail there I am afraid - just the nature of the business.

 

[Purple Brain]

The earlier you get into a move, the more risk you carry but the greater the reward. If you wait for confirmations, the move has probably already left the station, carries a lower risk but also a lower reward. No grail there I am afraid - just the nature of the business.

There doesn’t appear to be just one right answer or right approach as the bottom line, quite literally, would seem to gravitate around upon sensible stops to cut losses early on those setups which have significant confirmation criteria and therefore ‘should’ not come back against you significantly and even more importantly on those that are more of a punt where you don’t want to give too much away to find out you’re wrong. I assume this skill of assessing the size of and setting sensible stops comes with experience and is specific and unique to each trading method and every individual trader rather than anything empirical which can be taught?