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William:
I don't think this post is not dull at all since I am beginning to think
that the exits are probably more inportant than the entries. I guess I pose
the question : how important is the entry anyway since you can make money by
entering at random. True most people think the exits are boring but I think
that's where the cat lies.
I will look forward to your next post
Marcelo
William Vedder, Jr wrote:
> Using Dave DeLuca's Random Trader code, I've been testing various exit
> strategies and their properties. I'm using daily data for IBM from
> 1/4/84 thru 3/17/99. Here are the exits I've tested:
>
> After a random entry:
>
> 1. Exit each trade after 11 days
> 2. Exit using Chandelier Standard (using 3 ATRs)
> 3. Exit using Chandelier Thrust (using 3 ATRs)
> 4. Exit using Parabolic (as coded in TradeStation)
>
> Here are some of the test results:
>
> Exit No. 1 2 3 4
> No. Trades 4068 3909 4840 2288
> Avg Trade Len 11 17 8 11
> Avg MAE (pts) -2.39 -2.17 -2.01 -2.17
> Avg MFE (pts) 2.36 3.99 2.08 3.01
> Max Equity (k$) 1.6 195 11.2 250
> Min Equity (k$) (181) (18) (70) (9)
> End Equity (k$) (152) 176 (51) 245
> Profit Eff (%) 63.4 42.4 80.3 48.6
> Loss Eff (%) 63.2 75.0 79.6 68.8
> Win % 48.2 37.6 50.8 40.3
>
> Each trade includes comm/skid of $60.
>
> The Chandelier exit is Chuck LeBeau's posted here previously. It
> basically exits a long trade after price has retraced 3 ATRs from the
> highest H since entry. The Chandelier "Thrust" reverses the logic
> somewhat (attempting to minimize profit giveback) by exiting (longs) at
> the lowest L since entry PLUS 3 ATRs. The parabolic exit uses the canned
> TS indicator to exit (longs) when price drops thru the parabolic price
> calculated using the standard accelfactor of 0.02.
>
> MFE and MAE are maximum favorable excursion and maximum adverse
> excursion as written about by John Sweeney.
>
> Profit Eff is the profit efficiency calculated as (for winning longs):
> (Exit Price - Entry Price)/(Highest H since entry - Entry Price) * 100%
> Higher numbers indicate less profit giveback.
>
> The Loss Eff is loss efficiency calculated (for losing longs):
> (Entry price - Exit Price)/(Entry Price - Lowest L since entry) * 100%
> Lower numbers indicate the exit is making the best of a bad situation.
>
> These results tell me:
> * in terms of maximizing equity, the best exit appears to be the
> parabolic.
>
> * the Chandeleir exit does do what it's supposed to ie. catch the big
> moves. It's MFE was by far the largest of the group. It's also very
> profitable.
>
> * the Chandelier Thrust does do what it's supposed to ie. try to
> minimize profit giveback. HOWEVER, as can be seen by the ending
> equity (poorer than standard Chandelier), minimizing profit giveback
> doesn't do much for the bottom line. It's nice psychologically to
> avoid profit giveback, it much more important to stay with the big
> moves. This is what the big boys always preach, eh?
>
> * winning % isn't important. The exit w/ the highest win % lost $.
>
> * the parabolic is able to minimize losses as well as the Chandelier.
> Additionally, it captures profit better (higher profit eff) and gets
> out of losers sooner (smaller loss efficiency).
>
> Comments/criticisms are welcome.
>
> As I get time, I'll code the parabolic exit with Wong's entry and post
> the results. Since Wong's system only entered long trades, I'll include
> a short entry. I'll also want to test the resulting system on other
> equities.
>
> Regards,
> Bill Vedder
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