How to Optimize for a Timed Exit (Hint: it's easier than you think)
By Dave Mabe
As more and more traders start using the Strategy Cruncher, a common question is:
OK, I see how to optimize on my column library, but is there a way to optimize my timed exits?
It's a good question, but my answer is different from what you might think.
Think about a strategy that enters early in the trading day.
Now think about when the strategy should exit if the stop and/or target are not hit.
The difference between exiting at, say, 2:30pm and 2:31pm is negligible, but very often traders will obsess over optimizing based on that level of precision.
The better way to think about this is not to "optimize" per se, as you would on a regular column in your backtest with the Cruncher.
It's more useful to take a step back and think about your trading signal.
Does the setup need as much time as possible to play out?
Or is it a short-term setup that doesn't require much time?
Instead of obsessing over whether 2:30 is better than 2:31, or whether 31 minutes is a better hold time than 30, use your intuition and experience to answer the questions above.
If you're trend following, then "just hold all day" is the default approach.
If the strategy is mean reversion, then perhaps consider a shorter hold.
This is more productive than trying to optimize the exact minute.
How much confidence can you have in deciding that 2:31 is a little better than 2:30? Not much!
There are other things to optimize that will give you more confidence than this.
-Dave
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