Author Topic: Dealing with "Profit Stop" Signals  (Read 3010 times)

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Offline Radan Nielsen

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Dealing with "Profit Stop" Signals
« on: 17/05/2016, 03:38:43 PM »
I am wondering how SPA users are reacting to "profit stop" signals. Are people simply selling on the open the following day, trying to finesse an exit during the course of the day or disregarding the signal completely? I find it "easiest" to close out mechanically on open (or even on close of signal day if I am aware of the signal being generated), however I must say there is a lot of instances where the stock continues to trade higher (particularly if price not overextended prior to a strong rise), only to have to re-enter the following week at a higher price. XPE is a current example of this occurrence.
I am wondering if SWS has any data on the relative performance of portfolios who adhere to the take profit signal versus those that don't? The risk of greater drawdown using the latter approach could be negated by reducing the position size when a re-entry is generated.

Rad Nielsen   

Offline Marc Schwarz

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Re: Dealing with "Profit Stop" Signals
« Reply #1 on: 19/05/2016, 09:01:04 PM »
I place my sell order the night before and sell at market on open. After this I don't even look at what could have happened if....

I originally tried keeping a journal and watching my completed trades to see if I could maximize profits. What I actually found was I would waste a huge amount of time for an unpredictable result. There might be a best time to sell (or ignore the signal) for a higher chance of maximizing profits but I obviously couldn't test this with a large enough sample size. Either way, I find that placing my orders the night before and forgetting about them ensures I stay mechanical.

If you ignored the profit stop signal completely, would you simply wait for another sell signal for your exit?

Offline Campbell Sinclair

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Re: Dealing with "Profit Stop" Signals
« Reply #2 on: 23/05/2016, 02:25:21 PM »
Hi Radan,

The data on the performance of taking profit stops to not taking them is found in the 2011 Whitepaper (found here: http://www.sharewealthsystems.com/members-zone/spa3/), with page 32 onwards explaining why. This is simply that the following trade will have a smaller position size (less exposure) after taking the profits, so even if the 2nd trade is not one of your portfolio's winning trades you are overall better off.

This explanation flows through to all of the research results showing improved overall portfolio performance, and the edge has further improved with the market risk timing changes introduced last year. You also run the risk of another entry not being generated, which is then allowing for discretion to appear when you take the exit.

Kind Regards,

Campbell Sinclair

Offline Radan Nielsen

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Re: Dealing with "Profit Stop" Signals
« Reply #3 on: 23/05/2016, 02:45:30 PM »
Thanks for your response Campbell.

Regards,
Rad.

Offline Cecil Pontre

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Re: Dealing with "Profit Stop" Signals
« Reply #4 on: 23/05/2016, 03:17:45 PM »
I sold IFN on the 12/5/16 on a profit stop and bought it again on the 14/5/16 on a buy signal.

Offline Steve Nelson

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Re: Dealing with "Profit Stop" Signals
« Reply #5 on: 23/05/2016, 03:59:14 PM »
Hi Radan

From a trend trading point of views I don't bother to try and finesse the system and just follow the signals. I feel that you also won't have enough data from these exceptions to really know if the improved/worsened results were due to an improved method or just to randomness/luck.

However I will override the system, but only if it relates to some "news" around the company, that obviously SPA3 doesn't consider. In this way I have found that occasionally SPA3 throws up some interesting stocks that I then want to hold in my "speculative" portfolio. A recent example is Eden Technology which had a fast run up on the back of several very interesting and positive news stories and looks like it might have a great long longer term future.

In this instance, I will enter it as a "sell" on my spa3 portfolio at the following days close price.  Then I enter it as a purchase at the same price in my other portfolio. That way, firstly you don't corrupt the reported results on the SPA3 system, but more importantly you are accumulating the data on any overrides you make, in a separate portfolio. It then becomes a lot easier to look back at these and see if they are a net positive or negative influence on your overall results.

Hope that helps

Cheers

Steve