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not using profit targets during strategy development #476188
02/03/19 16:49
02/03/19 16:49
Joined: Nov 2018
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gamadeus Offline OP
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In the presentation linked to the financial hacker it says:

"Do not use profittargets.(If you really want to, use a profit-lock mechanism instead)."

I have trouble understanding the argument. Im basically always using a TakeProfit when developing a trade system, particularly in the beginning when I evaluate entries.

Can somebody enlighten me what is meant here, maybe even jcl himself?

Re: not using profit targets during strategy development [Re: gamadeus] #476193
02/03/19 20:12
02/03/19 20:12
Joined: Feb 2017
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Chicago
AndrewAMD Online
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Argument? This is largely learned through experience and data collection. Basically, profit targets limit the potential profit of any given trade and will tend to make your system less profitable.

This concept is examined in the book Trading Systems by Jaekle and Tomasini. It's definitely worth a read, especially for its coverage of risk management.

Why run some tests and see what it does to the profitability of your systems?

Re: not using profit targets during strategy development [Re: AndrewAMD] #476194
02/03/19 21:16
02/03/19 21:16
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gamadeus Offline OP
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Well, I would hestitate to make that statement in general.

Certainly trend strategies get worse with a fixed TP but the same does not hold true for, say, a mean reverting strategy.

I know that book you recommended, and actually Profit Target is also discussed as an option when developing a system.


Last edited by gamadeus; 02/03/19 21:16.
Re: not using profit targets during strategy development [Re: gamadeus] #476195
02/03/19 22:05
02/03/19 22:05
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AndrewAMD Online
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And you made MAE and MFE plots per the book’s suggestion? You can get a visual indication of whether or not take profit is appropriate.

Re: not using profit targets during strategy development [Re: AndrewAMD] #476196
02/03/19 22:18
02/03/19 22:18
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gamadeus Offline OP
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Tbh I dont use MAE and MFE that much anymore. I think Zorro in combination with R features much better tools for analysis.

Anyway, I think you agree that there are systems where a TP might be appropriate. Which brings me back to my original question about that absolute statement in the presentation.
Perhaps that point is taken out of context, so it would be great if jcl could comment what that was all about.

Re: not using profit targets during strategy development [Re: gamadeus] #476202
02/04/19 09:02
02/04/19 09:02
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I do not know much situations where a TP would make sense. Suppose TP is at X and the price rises to maximum Y. If Y < X, the TP is useless. If Y > X, the TP causes a premature exit with loss of Y-X potential profit. Instead of a TP, you had then better used a profit lock or a tight trailing mechanism starting at X.

Re: not using profit targets during strategy development [Re: jcl] #476203
02/04/19 09:09
02/04/19 09:09
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gamadeus Offline OP
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ok that makes sense, thanks. in my old MT days I had more luck with a TP than a trailing stop, but perhaps that was also due the limited possibilties I had with that plattform

are there any profit lock or trail settings that you would recommend to use as a starting point for strategy development?

Re: not using profit targets during strategy development [Re: gamadeus] #476388
02/21/19 23:23
02/21/19 23:23
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berlin
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laz Offline
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berlin
Feel free to read the last few notes (page 2) from my topic:

https://opserver.de/ubb7/ubbthreads.php?ubb=showflat&Number=476387&#Post476387

I asked something similar and learned a lot wink


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