When developing a strategy, exits are often not given a second thought. If you are creating a mean reversion, you may default to using Close greater than the 2-period RSI. If you are trading a trend strategy, you may default to trailing exit using 14-day ATR. You try a bunch of entry filters but rarely try a different exit. Or maybe a slight change in the exit.
If you are having success, with your strategy. You think great and don’t change the exit. If you are not getting anywhere, you think the idea did not work and stop testing.
A slight change in your exit can have a huge impact on the results as was driven into me during some recent research. I am guilty of not be as thorough in my testing of exits as I should be. Hopefully, this will convince you to look at them more at the beginning of your research.
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Good Quant Trading,
Cesar
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