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Are these three positions all in the same security with the same entry
signal? If so, I think you'll find a computer optimization will say to use
one of the three exit signals exclusively.
What you'll need to do to optimize your exit strategy is to decide what
"profitability" number you are going to optimize on. Some possibilities are
Sharpe ratio, net profits, monthly returns, profit factor. Then you
backtest each strategy across the range of exit strategies you want to test
(different size profit targets, no profit target and only using an exit
signal, stop losses, etc.) Whichever strategy has the best result for the
profitability indicator you decide on is the optimum for the space of
strategies and data sample you considered.
One of the three (small profit target, larger profit target, or exit signal)
is going to be more "profitable" than the other two. Even so, you might
still want to use the three different exit strategies for psychological
reasons. For example, it might be nice to bag some profits with profit
targets and this will give you the emotional staying power to stick with a
longer hold to try to get some more juice. Psychological and emotional
advantages don't translate well to computer optimizations, though.
Let me know what you end up doing.
Aaron Schindler
----- Original Message -----
From: "rascal2" <rascal2@xxxxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Monday, December 03, 2001 11:06 AM
Subject: Optimization-multiple positions
> For the first time, I am attempting to optimize a system trading more than
> one position. I am not sure how to do so. The system is designed to exit
> position 1 at a modest profit target, position 2 at a larger profit
target,
> and position 3 runs until an exit is signaled. I do not know how to
> optimize the system for the various exits - one at a time, all together,
> etc. Should I optimize the profit targets together using different ranges
> for each? Any help would be appreciated.
>
>
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