The Asymmetric Nature of Entries & Exits

[Purple Brain]

I find that I require many more factors to agree for confirmation for entry into a trade than I do to exit one. Given the patience required to identify a potential candidate and the effort expended in assessing and assimilating all the necessary data to support an entry and then the emotional energy in making the actual commitment to enter, the exit decision mostly seems to be something of an anti-climax in comparison, regardless of the profitability of the trade or the length of time it has run.

The underlying profitability of my simple trading method isn’t an issue and there are far fewer times where I have been unhappy to have exited where I did compared with those where I have been perfectly happy with the exit decision and timing. But there does seem a substantial skewedness between the two decision events: Entry and Exit.

Is this a ‘normal’ situation that most traders find themselves in or does this highlight an underlying weakness somewhere within my method perhaps? I’d be happiest to have the entries occur as easily as do the exits of course, but probably still be as happy with requiring as much effort to exit as I do to enter. Happier than I am now; it’s the asymmetry with bothers me as I feel each decision ‘should’ carry equal weight and effort.

 

[malaguti]

Is this a ‘normal’ situation that most traders find themselves in or does this highlight an underlying weakness somewhere within my method perhaps?

I have a three criteria for entry and enter with full risk, and scale out in 3rds for exit My exit criteria being effectively the 3 conditions for entry but not exactly the same. Its the one third that keeps me in for much much longer..effectively my criteria for a trend change.
I never liked the idea of exiting fully

 

[new_trader]

the exit decision mostly seems to be something of an anti-climax in comparison, regardless of the profitability of the trade or the length of time it has run.

Are you implying that you can exit a trade at a loss as easily as you exit a trade with a profit? If so, I find that not only hard to believe, but also, it seems to contradict what almost every trader experiences.

 

[robster970]

If you do mean what NT asserts then I too find it unusual.

If it isn't then I can only guess it is still a normal psychological issue as pre-entry and entry you are preparing yourself to bear risk and uncertainty (discomfort). Trade mgmt is about carrying the risk (discomfort normalises itself somewhat). Exit you relieve yourself of the risk burden and naturally feel better as the world has become more certain again (discomfort goes).

You sound like a perfectly normal and irrational human being to me - same as the rest of us.

 

[numbertea]

I second robster970's view. I have my exits simple, 4 possible outcomes: on trailing stop i will exit, emergency exit, or refresh and disregard due to pressure, OR, all goes well, out at target. These are coded in, I still have to push an entry button. I think fear makes me believe I can't properly create an automated entry but I'm starting to overcome that.

Definitely asymmetric due to emotion.

 

[Purple Brain]

Are you implying that you can exit a trade at a loss as easily as you exit a trade with a profit? If so, I find that not only hard to believe, but also, it seems to contradict what almost every trader experiences.

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.

 

[robster970]

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.

An old trader once said to me, 'What gets you in, gets you out'. Although I don't practice this myself I can see the value in the symmetry of it. They are wise words IMO.

 

[Purple Brain]

An old trader once said to me, 'What gets you in, gets you out'. Although I don't practice this myself I can see the value in the symmetry of it. They are wise words IMO.

What I have done over these last two trading days is precisely that, although I’ve only just read your post.

In the pursuit of symmetry more for research than anything else, I decided I could either take less confirmation for entries or more confirmation for exits. To compare both of these approaches against my current methods I restricted the pairs to test against to a subset of my normal trading set as overload would potentially become an issue. I don’t find any benefit in back testing nor in trading demo so I assigned the smallest position size I could to each of my trades. I could have carried on normal size with my normal method of course and adjusted P&L in-line with size of test trades, but why make extra work.
Two days is far too short a time to draw any definitive conclusion, but it’s been incredibly insightful so far. My normal method (relatively high number of criteria for entry and just one for exit) performed characteristically so in terms of a comparison against normal trading ranges and trends it’s probably been a good period in which to contrast the methods.

Requiring a similarly large number of criteria for exit as I currently use for entry kept me in some trades longer for returns well above my normal trade expectancy, but resulted in my win/loss rate dropping significantly. Overall expectancy actually went negative for this period using this method.

Relaxing the entry criteria and keeping the exit criteria at its current simple level resulted in getting into more trades earlier and at a better level than my standard method. It also resulted in some false starts as you would expect, but the exit criteria killed these off for fairly few pips each time. My win/loss rate dipped slightly but my expectancy grew by a significant factor. This may be nothing to do with symmetry and more to do with getting in at better levels on those trades I would have eventually taken anyway, but whichever way you slice it the result is the same.

Early days and insufficient data upon which to make any credible analysis from a P&L and expectancy basis, but, trading the simpler entry method was an extremely rewarding event from a psychological perspective. A lot less sweat. Arguably trading smaller position size takes a lot of the angst out of the picture so I’ll carry on with the smaller position sizing for another week or so and then providing there’s not significant deviation in performance from these past two days, I’ll increase my stake to normal size for all trades for both my normal method and the easier entry method. I am assuming I will drop entirely the complex/complex variant during this period.

 

[Purple Brain]

Meant to append these to my post above, but forgot.

Security is mostly a superstition.
It does not exist in nature, nor do the children of men as a whole experience it.
Avoiding danger is no safer in the long run than outright exposure.
Life is either a daring adventure or nothing. - Helen Keller

Security puts a premium on feebleness. - H.G. Wells

If you can make one heap of all your winnings
And risk it all on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breath a word about your loss;
(Rudyard Kipling)

Over the years I’ve always jotted down quotes that hit a chord and these seem germane to the topic. As traders we are advised to adopt cautious risk management and money management techniques and given the failure rate for those that do not I have no intention currently of changing my own very cautious approach. But those characters we most admire from history and even some still living rarely have that characteristic. They are bold, brave and gutsy.
All in the valley of death rode the six hundred, not an advance party of 1% with orders to report back. I wonder if from a trader’s perspective the equivalent would be getting in earlier and hanging in longer rather than going all in with the pot?

 

[robster970]

What I have done over these last two trading days is precisely that, although I’ve only just read your post........

That is an interesting post indeed. My own personal experiences of using symmetric entry and exit criteria was that it worked well on a basic trend following system once the "balance of criteria applied" and the "location vs confirmation" decisions were made. However it was absolutely lousy for me for reversals, trading with momentum off the open, and other more marginal types of set-ups that have rather high pay-offs wrt risk.

Eventually I summarised the symmetry problem down to a single issue (well for me) - adjusting to the pace of the market.

If you are trading a method that is independent of pace (like a trend where it is likely to be going at a fairly consistent rate) then applying symmetric criteria seemed to work.

If your method relies upon change of pace to trigger either side of the trade, then your entry and exit criteria are likely to be different.

It took me a long, long time to learn the value of adapting to the pace of the market.

But those characters we most admire from history and even some still living rarely have that characteristic. They are bold, brave and gutsy.

Are you familiar with the concept of 'Survivorship bias'?

Survivorship bias - Wikipedia, the free encyclopedia

 

[Purple Brain]

Are you familiar with the concept of 'Survivorship bias'?

Yes I am, but I don’t know how far you can stretch that theory into Behavioural Finance as it applies to individual retail traders. There aren’t any famous ones. Does that mean they all failed? Unlikely. More likely there’s not much of a story to tell or if there is, they’re not going to pass it on. Bit like the membership of this site. I’ve not done extensive research, but superficially, there are some members who appear to know what they’ve been talking about and shared openly and at length and sometimes over a long period of time. Then they simply stop. The probabilities suggest they didn’t all just die or stop trading or blow their accounts. They didn’t ‘survive’ this site, but that doesn’t mean they failed. Possibly quite the opposite.

 

[Shakone]

I think perhaps it should be asymmetric, because the risk is.

If you have 7 criteria, then most likely it takes longer for those 7 criteria to be true, than just 1 criterion.

So if I have say 7 criteria for getting me into a trade, which appears maybe once a day, week, whatever. Then I simply cannot wait a day or week or longer as a trade is going against me, to be told by my criteria to get out. What if it takes a month for those reasons to appear, and I'm losing more? That's simply not sensible (to me). Perhaps for winning trades it is more reasonable. So there's always going to be a stop, that is one criterion which takes you out, if necessary.

However, flip it to entries, and waiting that week costs nothing.

 

[Mr. Charts]

Purple Brain,
Though it's not for me to say this, welcome to t2w.
When I notice your name, I read your posts.
There are few about whom I can say that.
It's a pleasure to read sensible, literate posts.
You're not called Albert, are you?
Richard

 

[Purple Brain]

Here’s a live one. EURUSD. Just gone short as it bounces off the underside of the ema. I’d normally wait for the price to close below the lwma 11 and for it to be below a couple of other levels and for it to be below a sig. sr level at 3067. No idea (obviously) if this will fly or not, but although getting in at 3076 rather than sub-3067 isn’t going to buy a yacht, those extra pips all mount up. Egg on my face if it hits my stop at 3115…

 

[Purple Brain]

Purple Brain,
Though it's not for me to say this, welcome to t2w.
When I notice your name, I read your posts.
There are few about whom I can say that.
It's a pleasure to read sensible, literate posts.
You're not called Albert, are you?
Richard

Thank you for the compliment. I am delighted in however small a way to be seen to be addressing the debit I owe to the more experienced members of this site.

 

[Purple Brain]

This trade was not of any use in illustrating the process I am undertaking. I wanted to show the various stages of entry and exit decision making with each of the prototype methods compared with my normal method and to outline the various advantages/disadvantages as they occurred. On the plus side, as with all trades, it was extremely useful in illustrating that you don’t get to decide ahead of time which trades are going to be useful and worthwhile, and which are not.

 

[Purple Brain]

And then of course I realised it was perfect for precisely that reason. I had taken this trade without all the normal confirming factors in order to further research the efficacy (or not) of relaxing entry rules/complicating exit rules. This was in fact a perfect example of the downside in not waiting for all entry setup criteria. The normal trade has not been taken and hasn’t caused me any losses. This trade has caused me a loss, but adds to the data comparing the various approaches.

This is interesting for a quite separate reason too. It perhaps indicates how easy it is even when doing outright research to lose sight of the true aim of the experiment and get caught up in the more prosaic quest for profit over loss for every single trade.

 

[kimo'sabby]

I find that I require many more factors to agree for confirmation for entry into a trade than I do to exit one. Given the patience required to identify a potential candidate and the effort expended in assessing and assimilating all the necessary data to support an entry and then the emotional energy in making the actual commitment to enter, the exit decision mostly seems to be something of an anti-climax in comparison, regardless of the profitability of the trade or the length of time it has run.

The underlying profitability of my simple trading method isn’t an issue and there are far fewer times where I have been unhappy to have exited where I did compared with those where I have been perfectly happy with the exit decision and timing. But there does seem a substantial skewedness between the two decision events: Entry and Exit.

Is this a ‘normal’ situation that most traders find themselves in or does this highlight an underlying weakness somewhere within my method perhaps? I’d be happiest to have the entries occur as easily as do the exits of course, but probably still be as happy with requiring as much effort to exit as I do to enter. Happier than I am now; it’s the asymmetry with bothers me as I feel each decision ‘should’ carry equal weight and effort.

One trade is a package...which consists...the parts make the whole. The best gamblers organise with a view to the longterm...but you have to be organised and structured. You have to believe...otherwise you are really f*cked.

fOR good trading, read about professional gamblers...i like Veitch...you may admire someone else,

Most professional gamblers go through hell at some point. its only the crazy that go through with it.

 

[NVP]

the few sucessful professional Gamblers would be even more sucessful in other fields of business .........but instead they chose the hardest game in the world....fascinating !

My Grandfather knew and worked with Phil Bull.......amazing and focussed man who transformed racing

N

 

[NVP]

Purple Brain,
Though it's not for me to say this, welcome to t2w.
When I notice your name, I read your posts.
There are few about whom I can say that.
It's a pleasure to read sensible, literate posts.
You're not called Albert, are you?
Richard

yep.......i noticed that ........PB isnt a normal "Newbie" by any means .......

N