Exits not more important than entries?
Posted: Sun Aug 23, 2009 1:46 pm
I am sure many are familiar with the adage that good exits are more important than entries, even to the extent that a random entry coupled with a good exit can be a viable entry/exit system. Personally I have always thought that a good entry is something worth working towards in the belief that a good entry is also a good exit in the stop and reverse sense. As a result I have spent some time and effort on developing what I think is a good entry and post a chart of EOD cumulative tick returns for the S & P 500 resulting from this entry and invite any comment.
The entry rule is quite simple - enter at the open the day following a signal, exiting any position in the contrary direction. The signal is simply that two indicator lines are both greater than their previous levels for a long, or both less than their previous levels for a short, otherwise remain in the current position. A simple stop and reverse rule set.
For comparative purposes I also tested with a simple protective entry stop GTC which does not move, the entry in this case being the same as above except that no entry will be taken if the open is at or below this stop level for a long or at/above this stop level for a short, in which case any current position is maintained.
The chart below shows the cumulative tick returns for the back adjusted S & P 500 futures contract with assumed costs of 8 ticks per position, 4 ticks being taken off the tick return for the day of entry and another 4 taken off on the exit day. For comparative purposes the cumulative tick return for a "buy and hold" strategy is also plotted.
Some simple summary statistics
Long only
Total tick return 69782
Max DD in ticks 1135
Trade Win percentage 81%
R Multiple expectancy 0.83
Average win size 1.12 R
Average loss size 0.42 R
"Van Tharp's" SQN 7.9
Short only
Total tick return 69147
Max DD in ticks 770
Trade Win percentage 72%
R Multiple expectancy 0.89
Average win size 1.43 R
Average loss size 0.52 R
"Van Tharp's" SQN 5.5
Long and Short combined
Total tick return 138929
Max DD in ticks 1513
Trade Win percentage 76%
R Multiple expectancy 0.86
Average win size 1.27 R
Average loss size 0.47 R
"Van Tharp's" SQN 6.3
The entry rule is quite simple - enter at the open the day following a signal, exiting any position in the contrary direction. The signal is simply that two indicator lines are both greater than their previous levels for a long, or both less than their previous levels for a short, otherwise remain in the current position. A simple stop and reverse rule set.
For comparative purposes I also tested with a simple protective entry stop GTC which does not move, the entry in this case being the same as above except that no entry will be taken if the open is at or below this stop level for a long or at/above this stop level for a short, in which case any current position is maintained.
The chart below shows the cumulative tick returns for the back adjusted S & P 500 futures contract with assumed costs of 8 ticks per position, 4 ticks being taken off the tick return for the day of entry and another 4 taken off on the exit day. For comparative purposes the cumulative tick return for a "buy and hold" strategy is also plotted.
Some simple summary statistics
Long only
Total tick return 69782
Max DD in ticks 1135
Trade Win percentage 81%
R Multiple expectancy 0.83
Average win size 1.12 R
Average loss size 0.42 R
"Van Tharp's" SQN 7.9
Short only
Total tick return 69147
Max DD in ticks 770
Trade Win percentage 72%
R Multiple expectancy 0.89
Average win size 1.43 R
Average loss size 0.52 R
"Van Tharp's" SQN 5.5
Long and Short combined
Total tick return 138929
Max DD in ticks 1513
Trade Win percentage 76%
R Multiple expectancy 0.86
Average win size 1.27 R
Average loss size 0.47 R
"Van Tharp's" SQN 6.3