Random Entry, Controlled exit

[FetteredChinos]

more musings...

trying to prove that exit is indeed more important that entry..


did a bit of Dow research on data from 1998 to late 2004.

trading EOD to EOD only,


toss a coin/flip the cat/count grandma's teeth etc to go long or short. as long as you have a 50/50 theoretical bias.


go long or short accordingly.

exit all long entries after 2 consecutive up days.

exit all short entries after 2 consecutive down days.


i have been hitting F9 on the attached spreadsheet and i am yet to come accross an equity curve that doesnt slope upwards.

of course it isnt tradeable, and the drawdowns are horrendous.

BUT, if we didnt have exit rules, the curve over a reasonable length of time should come to approximately zero less commissions..

the various runs i have come up with all seem to have a profit factor of 1.4 or so, a win rate of approx 65-70%, and an average win/average loss ratio of approx 75% (not so good)


there are better exit strategies out there, of course. but it does show that exit is more important than entry.

now the question is how to find the best exit strategy....



FC

 

[FetteredChinos]

or of course, find an entry better than 50/50


ps, i should mention that it might be preferable to "trade" such strategies using two futures contracts, one for longs, the other for shorts. might make things easier to keep track of

fc

 

[lbw111]

i can remember Robin T descibing Swaggers trading method as this over o the other side about 2 years ago :|

 

[FetteredChinos]

god rest his soul.



swags, whether trading for real or not, did always seem to buy into weakness and sell into strength though, so his entries werent just 50/50..

remember his M's and W's ?

 

[JonnyT]

Sorry, but isn't this method for Catholics?

JonnyT

 

[FetteredChinos]

depends if you can find a missionary lying around the place..

 

[Tuffty]

What!!?? This blows my mind!! Give's me a complete mental block!

'trying to prove that exit is indeed more important that entry..'

Can't have one without the other so one can't be more important can it?

Can you do the same thing in reverse, open position after two consecutive up/down days and then random exit to see if you can disprove what you've just done?

 

[Tuffty]

Oh yep, just had a thought your exit has randomness in it due to the random entry.

Me mind's still shorted a fuse!!

 

[Tuffty]

Mind still on overdrive...

I suppose it's not a bad concept for testing exits against one another in all market conditions!!

Um.... still thinking....

 

[FetteredChinos]

hmm i see what you are saying..

i'll try to come up with something in reverse to draw a random exit, combined with a breakout strat on dailys.

lets see..

 

[FetteredChinos]

ok here we go. entering on 2 sequential up days.

random exit.

curves are all over the place.

looks like i was right?

 

[Tuffty]

Fettered,
I quite like the idea of testing different exits without being tied to entries given by a system. I think what you have proved is that using the entry rule (after 2 days of consequtive market direction) it can't predict future market direction with random exits. On using the rule as an exit rule the 2 days of the market going in the direction of your trade it ensures that at least 2 days of 'correct' market direction are in the trade thus making the exit rule 'look better' than the entry rule.

 

[FetteredChinos]

yes, but therein lies a good exit, n'est-ce pas?