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Hi Herman –
In my experience and research, in general,
stops of any kind hurt system performance.
I assume that by “profit
stops”, you mean limit orders placed above a long position (or below a
short position) to exit the trade at a profit. I’ve already
mentioned to Tomasz that it would be nice for AmiBroker to use the terminology
“limit order” and include some afl procedures to allow easier
manipulation of them, rather than include limit orders in with stop orders and
the ApplyStop procedure.
(For readers who are fuzzy on the difference,
a limit order can be thought of as being executed when the trading price is
“better than” the limit price. A stop order is executed when
the trading price is “worse than” the stop price. Limit
orders are executed with little or no slippage; stop orders often have large
slippage. An open long position might have two open orders associated
with it – a limit order above the market to take profit, and a stop order
below the market to prevent loss.)
When a trading system is designed so that
the profit target is hit regularly – say 20 percent or more of the exits
are made through the profit target – then the use of profit targets can
smooth out an equity curve. When a trading system includes profit
targets, but they are seldom hit, the profit target has probably been
inappropriately curve-fit. It helps me to think of the profit target as a
system in itself, consider the number of parameters it represents, the number
of trades associated with it, and then evaluate the associated metrics and
statistics. These conditions are most easily met when the system trades
frequently.
Profit<font size=2
face=Arial> targets are used
by some traders to make a partial exit from a trade, say at a point where the
profit taken from the portion exited pays the commission and slippage of the entire
trade. The remainder of the position is exited via some other order –
maybe another profit target or maybe by a system reversal signal. Several
of us have already asked Tomasz to expand AmiBroker so that we can add to
existing trades and make partial exits from trades.
Similar evaluations of exits made through
stop orders should be made if the system uses any stop orders.
Howard
-----Original Message-----
From: Herman van den Bergen
[mailto:psytek@xxxxxxxx]
Sent: Monday, October 06, 2003
5:16 AM
To: AmiBroker
Subject: [amibroker] Profit Stops
<font size=2
face="Courier New">OK, I like profit Stops, they
seem to improve on all of my short-term<font size=2
face="Courier New">
systems.
The question is how to determine the best stop
levels. PStops don't get
activated to often, compared to the number of
trades, and optimizing for a
percentage PStop tends to capitalize on one or two
rare/lucky price moves.
So really the optimized percentage is not correct
for the future. It is
difficult to optimize.
A lot has been written on Maximum Loss Stops but
not so much on how to set
profit stops.
has anybody seen any discussion on this, or any
formulas?
thanks,
herman.
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