Missing Catalyst - December 14, 2011

[Billy]

So, with the move of IWM below the Robot stop today, the robot is entirely out of the market?

And the secondary entry is inconsequential to it?

Thanks,

Yes you are right. The robot is 100% back in cash. It would only re-enter a position tomorrow if there is an edge to do so.
Billy

[Billy]

Having the robot detect choppiness (and take profits accordingly) rather than manage the position with a trend-following setup would be a useful enhancement imo.

Trader D

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

[nickola.pazderic]

I never felt more like a clown than when I tried to teach undergraduates in a low level required (meaning big money for the university) course. But even with the best graduate students in the country, it is hard to not feel a clown as a teacher. There is a nice name in the title and certain afforded pleasures, but the indignities are many. I can only thank you as a form of encouragement for the work you've taken to instruct us all.

[roberto.giusto]

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

Billy,

I was thinking to the very interesting example you showed us a few days ago, using 3 different (with 2 tighter) trailing stops for your triple leveraged position.

That could be a way to limit the loss, or even to have a little profit even if the official robot trade incurs into a loss.

The reverse of the coin is that long term cumulative performance still risks being deteriorated if compared to a "full" position.

[TraderD]

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

This question breaks down for me to asking whether choppiness can be identified at trade pre-entry or at position post-entry. I believe that the decision to not enter on weak signals represents the first case and the accompanied belief that the expected reward isn't worth the risk (in relative terms, when compared with entering on strong signals). So now what about the second case where you already have a position and an apriori-known trade mgmt plan (which takes the form of EOD-based position exit rules, recalculated stops, etc.)

While the position is held, the market keeps on injecting new information that can be analyzed, not merely particular to the trade itself. The question I'd ask is, what would warrant altering the original trade plan and playing defense (profit taking) instead of offense (riding a trend). Is it the signal becoming neutral? Is it the position failing to "move" after X days? There's clearly a myriad of possibilities. I gather that you have tested some of them, but maybe a more dynamic market evaluation method could find that golden path of switching between offense and defense while the position is on.

$.02,

Trader D