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Everything posted by jfire
I've done extensive back testing of both types of exits (in TradeStation): 1: Where I set a profit target and got out, and 2: Where I let the winners run (using a moving average). The result was a wash. The amount left on the table that I would have gotten if I hadn't exited at the target, was almost exactly the same as the amount lost from trying to let the winner run past the target until it hit a moving average (tried lots of different averages). Despite the back testing however, psychologically, I'm more comfortable with letting my winners run, rather than exiting at a target. So that is how I trade. In my plan, I've recorded these statements to remind myself of the game I play: No matter what trading plan you have, periodically, it's going to: 1. Leave money on the table. 2. Get you into a bad trade. 3. Keep you out of a good trade. 4. Miss it's target exit by a small amount and then turn into a bad trade. Get over it and take the next trade! (From Trading in the Zone).
I believe the term "zero sum" refers to the fact that there are fees associated with entering and exiting a position. Therefore, the price paid to the seller, from the buyer, will never equal the actual value of the product (the sum is less than zero). Direct costs associated with each trade might include your platform (brokerage) fee, commissions, data feeds, and the spread (between the bid and ask). And of course there are also indirect costs, such as internet fees, subscriptions, education, etc.