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1998issue C031-7

Exit rules evaluated with a fixed random entry

A historical evaluation held one entry rule fixed and used random long, short, and no-signal draws so a Stop-loss order, a Time stop, and a Trailing exit could be inspected together as a complete exit procedure.

  • A complete exit procedure coordinates several exit types so losses stay bounded while winning trades are not cut off before they can develop.
  • Holding the entry rule fixed across exit tests isolates how much of the outcome comes from the exit rules rather than from a changing entry method.
  • Random long, short, and no-signal draws were used so the test sample would include bad trades as well as chance winners, which is required to evaluate whether exits cut losers quickly.
  • The coded procedure applied a Stop-loss order and profit-target exits together with a Time stop, and implemented the Trailing exit in custom code.
Entries in this reading3 entries
Time stop6 readingsCurrent trackTrailing exit18 readingsStop-loss order144 readings

A complete exit procedure

A complete exit procedure coordinates several exit types so losses stay bounded while winning trades are not cut off before they can develop.

Why the entry rule was held fixed

Holding the entry rule fixed across exit tests isolates how much of the outcome comes from the exit rules rather than from a changing entry method.

A random position stream

Random long, short, and no-signal draws were used so the test sample would include bad trades as well as chance winners, which is required to evaluate whether exits cut losers quickly.

An entry was allowed only after more than five bars since the prior entry and only when a random draw produced a long or short signal, so average signal spacing was about every 11 days.

Over the January 3, 1983 to July 30, 1997 S&P 500 continuous-contract sample, that entry rule was expected to produce about 23 entries per year, or about 330 trades in 14.5 years.

A fixed five-bar exit

Because long and short signals were balanced, a fixed five-bar exit would be expected to break even over the long haul except for commissions and slippage.

How the exits were coded

The test platform implemented Trailing exit rules in custom code because some packaged trailing-stop tools were judged inefficient or capable of producing incorrect results.

The coded procedure applied a money-management Stop-loss order and profit-target exits together with a Time stop that closed any position held four or more days.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
8 of 18 in the Trailing exit track
20021-2 pp.Next on Trailing exitConstruct the stay-or-flatten decision before entryExit choices are made after a position is already open, so fear and greed make them harder to carry out than unused entries.
All readings on this track · 18 readings
  1. 1988Constructing a mechanical trend system with independent trailing exits
  2. 1991Write a staged RSI exit book with trailing stops
  3. 1993Evaluating filter-trigger trailing exits after breakouts
  4. 1995Weekly-close breakout entry and trailing exit in Eurodollars
  5. 1996Evaluating moving-average turn entries and slope exits
  6. 1997Precommit an equity-risk cap and a profit-retracement exit
  7. 1998Exit stops before entries
  8. 1998Exit rules evaluated with a fixed random entry
  9. 2002Construct the stay-or-flatten decision before entry
  10. 2006Audit the stop, trail, and risk-reward stack as one procedure
  11. 2007Building a momentum system with relative strength and trailing exits
  12. 2013When buy and hold needs a sell rule
  13. 2013A mechanical trend toolkit that turns screens into one entry-exit procedure
  14. 2014Is a two-period relative strength index, a channel breakout, and a trailing exit one long-only procedure?
  15. 2016Trend-aligned option entries and trailing exits
  16. 2017Monthly three-black candles as a trailing exit
  17. 2018Evaluating profit-taking and reentry in trend following
  18. 2020Treat the zigzag threshold as a volatility-scaled construction variable
By fieldEntry and exit rules206 readingsBy year199853 readings
All 18 readings tagged Trailing exit
Also on Trailing exit5 readings
2002Construct the stay-or-flatten decision before entryTime stop1992Evaluating maximum-adverse-excursion stop reversals with short time stopsTime stop1985A serial-dependence window from signed price transitionsTime stop1991Opening gap fades bounded by excursion and time stopsTime stop2005Write a moving-average pullback as one procedureTime stop