Increase profits, reduce losses

Increase profits, reduce losses

This article is devoted to the eternal theme of finding the optimal strategy and tactics of compulsory income while working at the exchange. The author suggests not to rely on the computer, and most consistently profitable track the movement of prices and record profits consistently.

Memoirs of an old trader
I remember the old treydersky anecdote in which the trader has successfully bought the paper on the trend and the long wait until the trend will not end until you form a turning figure. So he closed the position with zero result. We will not dismantle its system of decision-making, and we'll talk about the typical side of his trade.

Analyzing the market, we are looking for entry points to get, as we believe profit. But since the purpose of entry is not a profit, but to initiate a transaction in the right direction, the profit we get is not always. It can be a long time to say, do not login, and sets out the impact of trade. But that may say, we are entering the market cool. Almost all of our transactions since the opening of a position generate revenues, but we did not measure profit by giving her an opportunity to grow. At this point the price is set and goes against us.

Stages of a long journey
It can be a long talk about ups and downs, but it will not improve trade.

Step 1. Of the problem. The problem is to determine where to record profits after receiving a signal to the opening position. First, we must define the input signal and, secondly, the technology for determining the level of fixation of profit.

Step 2. Study of the problem. So, we realized that a good position, and that the price for some time is in the right direction. But the closing of the position is not at the best price. Let's see how long the price went in the direction of our open positions. Building the system of decision-making, which contains the primary signal for the opening position. Our system will reversionnoy, that is a signal to close long positions will also be a signal to open the short position. We will use as a signal of price breakdown channel. Signaled to the purchase will serve as the intersection of upper price channel and the closure of the bar above this level. Signaled to the market, as well as a signal to close long positions, will serve as the lower limit of the intersection of costs tsenovogo channel and closing below the lower limit price kanala. Take 5-minute schedule of RAO UES from 20 May to 1 July 2003 and optimize it. Get quite good results: the system has a decent profit. The number of profitable and unprofitable transactions divided 50x50. And the average gain lucrative deal above the average loss is loss.

Step 3. The wording of the hypothesis or solution. Measure the maximum distance that was the price in the open position of the point of entry into the market. Let's call this distance the maximum profit and compare the result with the results of the transactions.

Figure 2 shows that all transactions, even loss-making, a time to be profitable. Assume that we will have a rolling stop at half of the positions that we are located on half of the price movement from the point of entry into the market to the maximum price movement in the direction of the open position. To do this in MetaStock best Fibonacci levels are marked 50%. And as soon as the price is set by the maximum movement in the open position, and we crossed the level of 50%, we will close half of its position.

Living with the system
Moved test results for further processing of MetaStock in Excel. This process is quite laborious, but the results will be significant. You get your own idea of what's happening instead of what would redirect this computer. C this approach to trading, in the first place, you will feel more confident, thanks to the live system, together with each transaction. You will see blagopriyatnye and adverse times, and easier to survive times when your strategy is projected to experience failures. Secondly, you probably understand what the rules are meaningless, or find a market situation which is not ready for action. And finally, you have developed their techniques to improve this technology. None of this would not be if this work for you is the computer.

A census of each transaction, subject to partial closure of the position, we will get results much better than the pure use of the system. Now we have received more money, and the number of profitable transactions will be much more unprofitable: 63h37. Yes, and the average profit transaction is much more the average loss. Based on this testing, we can conclude that the method of partial fixation of the profit after 50% roll back prices of its maximum movement is well placed to improve trading.

You can test this method on your systems and make its findings. You may not like 50%-ing a fixed level of profit, and another, or will you fix the amount of other positions. But all the questions will only be able to answer yourself. In conclusion, we cite the figure 3 to the schedule of returns. Blue schedule - without fixing a partial profit, red - with a partial fix.