hey taichi i've been reading ur blog since the 'old blog days'. When you put on a trade, do you have a stop loss? I have been learning so much from you, thank you!
Usually no hard stops set. I compensate for this "high risk" by keeping positions really small. I only stop out of trades when the technicals I was originally looking for are CLEARLY invalidated. This is what I mean by "fuzzy exits".
In the case of the EDM0/Z0 spread recently, a clear hard stop was evident after watching it for months and thus, I was able to run a much bigger position in the trade than usual.
Something that I covered in the old blog. Concept of Type 1 and Type 2 errors in statistical hypothesis testing adapted to Trend Following.
Type 1 error = Good trade exited pre-maturely
Type 2 error = Bad trade exited late
For me, I can live with higher incidences of Type 2 errors as a trade-off for avoiding more costly Type 1 errors. When a market trends, I do not want to get stopped out due to noise.
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hey taichi
ReplyDeletei've been reading ur blog since the 'old blog days'. When you put on a trade, do you have a stop loss? I have been learning so much from you, thank you!
Usually no hard stops set. I compensate for this "high risk" by keeping positions really small. I only stop out of trades when the technicals I was originally looking for are CLEARLY invalidated. This is what I mean by "fuzzy exits".
ReplyDeleteIn the case of the EDM0/Z0 spread recently, a clear hard stop was evident after watching it for months and thus, I was able to run a much bigger position in the trade than usual.
Something that I covered in the old blog. Concept of Type 1 and Type 2 errors in statistical hypothesis testing adapted to Trend Following.
ReplyDeleteType 1 error = Good trade exited pre-maturely
Type 2 error = Bad trade exited late
For me, I can live with higher incidences of Type 2 errors as a trade-off for avoiding more costly Type 1 errors. When a market trends, I do not want to get stopped out due to noise.