Magazine article Modern Trader

On Entries and Exits

Magazine article Modern Trader

On Entries and Exits

Article excerpt

Entering a trade is far easier than exiting a trade, as this is when your mind is clearest. While in a trade -- be it a winner or a loser -- emotions cloud the issue. This is the strongest argument for determining before you enter why and where you'll exit. Human emotions are impossible to anticipate; therefore, a rigorous plan must be devised and strictly followed. Consistency is key.

Emphasis is on entries, but it's the exit that determines the ultimate effectiveness of the trade. Entries and exits must work in harmony. For instance, entering a trade on an 80-day breakout and exiting on a four-day breakout is incompatible.

To further demonstrate the relationship between entries and exits, we tested a longer-term system with a longer-term exit and a shorter-term exit. In addition, we tested a shorter-term system with the same exit techniques. Here are the results over 15 years of data on 20 markets:

Long-term entry/long-term exit
Net Profit/loss                  $32,006
Max drawdown                    -$51,967
Trades                               167
Long-term entry/short-term exit
Net profit/loss                  -$6,045
Max drawdown                    -$16,587
Trades                               423
Short-term entry/short-term exit
Net profit/loss                   $37,184
Max drawdown                     -$45,234
Trades                              1,991
Short-term entry/long-term exit
Net profit/loss                   $29,681
Max drawdown                     -$64,952
Trades                                209

The types of exit techniques in the top 10 systems table are as diversified as the entries and fall basically into the following four categories:

1) Self-correcting: The exit criteria are the opposite of the entry criteria, and the exit constitutes an entry itself. …

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