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Thank
you Howard, for your good comments. I tend to agree with you that any type of
stops hurt performance, except perhaps in the case of short-term systems
that trade every few days. In that case the profit stop is partially based of
volatility, not only trade profits. If you can manage to work in that area
profit stops can enhance your system.
<FONT face=Arial color=#0000ff
size=2>
Thanks
again and best regards,
<FONT face=Arial color=#0000ff
size=2>Herman.
<FONT face=Tahoma
size=2>-----Original Message-----From: Howard Bandy
[mailto:howardbandy@xxxxxxxxx]Sent: Sunday, October 12, 2003 11:01
PMTo: amibroker@xxxxxxxxxxxxxxxCc:
howardbandy@xxxxxxxxxSubject: RE: [amibroker] Profit
Stops
<SPAN
>Hi Herman
–
<SPAN
>
<SPAN
>In my experience and
research, in general, stops of any kind hurt system performance.
<SPAN
>
<SPAN
>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.
<SPAN
>
<SPAN
>(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.)
<SPAN
>
<SPAN
>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.
<SPAN
>
<SPAN
>Profit<FONT
face=Arial size=2> 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.
<SPAN
>
<SPAN
>Similar evaluations
of exits made through stop orders should be made if the system uses any stop
orders.
<SPAN
>
<SPAN
>Howard
<SPAN
>
<SPAN
>
<SPAN
>
<SPAN
>
<DIV
>
<SPAN
>-----Original
Message-----From: Herman van
den Bergen [mailto:psytek@xxxxxxxx] <SPAN
>Sent: Monday, October 06, 2003 5:16
AMTo: AmiBroker<SPAN
>Subject: [amibroker] Profit
Stops
<SPAN
>
<FONT face="Courier New"
size=2>OK, I like profit Stops, they seem to
improve on all of my short-term<FONT face="Courier New"
size=2><FONT
face="Courier New">systems.<FONT
face="Courier New">The question is how to determine the best stop levels.
PStops don't getactivated to
often, compared to the number of trades, and optimizing for
apercentage PStop tends to
capitalize on one or two rare/lucky price moves.<FONT
face="Courier New">So really the optimized percentage is not correct for the
future. It isdifficult to
optimize.A lot has been
written on Maximum Loss Stops but not so much on how to
setprofit
stops.has anybody seen any
discussion on this, or any formulas?<FONT
face="Courier New">thanks,<FONT
face="Courier New">herman.
<TD
bgColor=#ffffcc>
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