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Wayne Moody wrote:
> 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
Wayne and RT'ers:
This is a fine post. For a good discussion on adverse
excursion and how to trade it, see RT member John Sweeney's
book "Campaign Trading." (Wiley Financial).
Jim Oliver
San Francisco
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