Monday, 12 April 2010

Where's the Exit Sign

Exiting a position at the right price is even more important than the entry. As I've quoted before, Pete Steidlmayer's famous words: "Just get the trade on and manage it".

However, in selecting exits, I have to take into account my style of trading. If I can't readily find a good exit strategy, my starting point is to go all out at the first logical scale out point and then look for a re-entry.

FloBot, on the other hand, examines all the trades within the parameters of its logic and can highlight the most profitable exit strategy. This can also mean that the model trades 20 or 30 times a day which I can't replicate manually. It's great for a FloBot but not for manual trading.

Using the MomDots for a manual exit also works for me. MomDots will keep me in a trade longer and that means that if there is a pullback I have already exited and can then also decide whether to re-enter. Using pure order flow is another method but I need to decide what sort of change I want to see before I exit. Looking at smoothed CVD or even raw CVD helps. Again, it's something I back test in the type of trading that is part of my trading plan. My trading plan copes with different volatility of markets. It's also different, for example, for the ES whether its RTH or before RTH.

As a discretionary trader, I use all the information in the context to fit my actions to where I am trading.

The complexity of all this is why auto trading has become so popular and will continue to be more so. The chart below shows FloBot's signals today in the Euro FX. The computer is programmed to give a signal each time the entry conditions are met. A new trade is not entered until the previous one is closed out. In fact, the way that FloBot is trading at the moment is to continually take small profits. This very much emulates pit trading by a local. This way of trading reduces risk and increases gross profitability as my entry conditions must be met each time FloBot re-enters. It is easier using a short profit target which is a more finite thing and then meeting entry conditions, than risking giving profit back due to less forgiving exit rules.

However, the commissions and fees trading from "upstairs" are much more than I paid when I was on the floor. There are a number of off floor memberships the exchanges are now offering that reduce these costs per trade for higher volume high frequency traders. At the present time, this seems to be the most profitable way to autotrade.


  1. 6E is where it is at! Look at all those trades!! Mah Goodness... Can I be your broker Tom and Kiki? :-)

  2. Could you please explain for what S&A stands after you buys and sells on the chart?


  3. FloBot still?? What happened to the Name Contest results?

  4. Thanks a lot for talking about how you exit positions. Key I believe is to see and realize when a day or a trade has "potential".

    From the flobot (btw, the name is very good I think) entries it seems that you also use the MomDots for entry (reentry) setups. Is that true?

    In terms of the range bar size I would like to ask if you changed them because flobot takes profits earlier?

  5. Is this a joke, I see a lot of losers here.

  6. Is there a reason why you are using a 5 range chart now for the 6E I recall you mentioning that you found 9 range to be ideal for your trading methodology.

  7. bakrob99 , It's staying FloBot so far. No one came up with a name we liked better so far,
    timokrates, depends on context and whether its an inside or outside trade.
    Anon 22:35, Of course there are plenty of losers, it's HFT. Stats are about 63% winners. In it's non HFT mode, higher win rate but lower overall profit even after costs.
    Anon 22:54, HFT mode is more profitable in 5 tick ranges as you would expect. 9 is still good for me in discretionary.

  8. One thing I forgot to ask, Tom.
    Your exit criterias in general need a bar close? So you would not take any action before you see a bar closing against you on higher opposite volume, breaking a momdot etc.?