This morning I exited a WhiteWave Foods (WWAV) trade for a -2.8% loss. No, it didn’t hit my stop of 2*ATR. So was this a panicky exit? You’re wondering why I didn’t stick with my system, right?
That’s easy. This particular trading system was flawed. Ironically it was the best system I’d come up with using ProRealTime. However when I finally was able to test it more thoroughly using AmiBroker, it turned out to be a dog.
I was willing to let this trade ride as long as other factors were in its favor. But given the lower highs and lower lows it was generating, I decided enough was enough. If I’d stuck with it, I might have yielded a -5.4% loss instead. Time to throw my good money at some other stock!
In case you were interested, the system used a mean-reversion idea with a detrended price oscillator. Basically, when the price is extended a good distance from a slow moving average in one direction, then heads that same distance in the other direction, it should bounce back again by a similar amount.
Which works great, except for all the times it doesn’t.
Perhaps there’s something to the idea, but I did a lot of curve-fitting on AmiBroker and still never got the system to where I’d actually want to trade it.
I guess the lesson here is: stick with a system that you believe in. But if you don’t believe in the system, you don’t get any points for staying to the bitter end.