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At 06:51 AM 1/29/98 -0600, Harley Meyer wrote:
(edited)
>I position trade and place a great deal of confidence in the mechanical
>side of the trading system. But it isn't perfect sense I still have to
>make subjective decisions. I think it is this subjective trading within
>the mechanical system that I want to be right.
>A problem with my position trading strategy is that I have no idea how
>much of a move a stock will move.
>I should try to put some thing together based upon daily range (Average
>True Range - ATR) to try and determine the size (points) of a possible
>move over several days. Not that it would be a hard and fast rule but
>more as a rule of thumb to look at.
Harley,
Unless I misunderstand, you seem to be saying that your mechanical
method gives exact entry but leaves exit subjective, or at least
in need of improvement.
ATR might be misleading, because your method might pick moves that are
extraordinary, not merely average. Try instead looking at data on how
past trades (real or paper) played out, in terms of percent price
excursion, and also in terms of days forward from entry. The results
will suggest a series of exit rules and guidelines customized to
these trades.
You may find, for example, that winners usually gain 2% your way, but
only a few gain much more, so that as a whole, you do best over time
by taking the 2%. You might see that a big gain your way right off the
bat almost always means the direction will persist for several days.
Or perhaps trades that fail to go your way to a certain degree by
Day 2 usually wind up failing. Observations like this can lead to
a set of contingency exit rules based on statistics instead of
subjectivity. Perhaps the subjective struggle is really an attempt
to do this, made difficult by seeing only parts of the puzzle
at any one time.
There will always be some trades that no amount of subjective tinkering
could get a handle on. Some will go well and suddenly flop, others
will go far beyond your wildest expectation. These are beyond anyone's
attempt to control. The ability to "get it right" has limits.
There is also room left for some common sense subjectivity based on
situations that are hard to decide in advance: you wanted 3 points
and you now have 2 3/4 points, and it's friday with five minutes
left in the session... maybe 2 3/4 is enough, if 3 is the max
anyway and you risk an unfriendly opening on monday.
Trade to get the highest average gain possible, based on the typical
behavior, and keep an eye on most recent trades to see if the pattern
is changing. Average gain might vary with general or sector volatility.
Wayne
wlm95@xxxxxxxxxx
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