A week ago I entered a trade, shown by the bottom yellow line. Prediction was that the price would increase by more than 1% over the next seven days, and I set a limit order to take profit at the level of the top yellow line. However it was all downhill from there and I’m wondering whether to close the trade and take a substantial loss, or wait for it to recover.
My XGBoost model is showing an 87% precision using the last 10% of data as a test set, with the model trained on the first 90% of data (about 10,000 6 hour OHLCV bars). So, 13% of positive predictions are false positives, as has happened here. But 87% precision is pretty good, a lot better than I expected. If I had implemented basic risk management, such as setting a stop loss at 2% loss, my current unrealized loss would have been a much smaller realized loss, and I’d now be in a position to buy in at a much lower price and end up in a lot better position than I will be.
So I haven’t really fully implemented the RL model that I plan to use to ‘supervise’ the trading of the XGBoost model, and indeed I’m waiting for a book by Yves Hilpisch on the subject to be released in December. However if I do some basic backtesting just using the XGBoost model, to determine the best levels for take profit and stop loss I think there’s an excellent chance that I can produce a profitable strategy without such an additional input. 87% precision really is pretty good. I should make the most of it.