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Interesting, though I do not know what is 3BSMA stop.
nand
--- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx> wrote:
> Hi All,
>
> I have been searching for an effective stopping methodology for a
> very long time (since I began trading). I experimented with
several,
> like all kinds of MA based stops, Gann's Rule of Eights stop, ATR
> based stops etc., I finally may have found a good one. It is based
> on the theory that there are essentially two types of markets:
> Trending and Trading Range. An instrument does not start a new
trend
> immediately after ending the previous trend. It might go into a
> consolidation phase (Trading Range) before starting a new trend.
The
> problem is to time this start of a new trend. Sometimes we have to
> wait for a long time indeed, thus if we enter the market too soon,
we
> get whipsawed. To solve this problem, I came out with the
> following: Use a "mental stop" on day of entry at a reasonable
> distance from your entry point. Either an ATR based stop or a
pivot
> point support/resistance based stop would suffice and exit only
after
> 20 minutes has passed since your mental stop is exceeded and you
are
> still losing. Use a 3BSMA stop during the initial stages (from
next
> session after entry when the start of a new trend is still not yet
> confirmed) in accordance with the principle: Cut your losses short.
>
> Plot(MA(C,3),"MA3",colorWhite,1);
>
> Once, a new trend has started (confirmed by LinRegReveral Indicator
> and/or Zig-Zag trend indicator) and powerSAR has also confirmed the
> new trend, use the following stop in accordance with the principle:
> Let your profits run.
>
> Plot(scPowerSar(0.02,0.01,0.2),"PowerSAR",-16,8+16);
>
> (You need AB's dll's to use this function)
>
> SAR is the Stop and Reverse system developed by Welles Wilder.
This
> system indicates where one should exit a trade and simultaneously
> reverse positions. It may also be coded to provide a stop for
> tomorrow's trading action. This function does not work with
> Equivolume chart.
>
> This provides a systematic way to set a stop order. The stops are
> changed daily and are adjusted to suit the market's conditions. It
> also keeps you constantly in the market. When one gets stopped
out,
> you are also to initiate a trade in the opposite direction (In
> reality, you would already may have gotten a reversal signal and
may
> be already trading it using a 3BSMA stop). This is generally used
by
> futures and forex traders. Stock traders could of course short the
> stock however, one could also just buy stock and sell it without
> shorting it. Then when the next buy signal occurs, jump in again.
> This can be quite useful during trending markets however, it is
> practically useless in trendless conditions (I use Dr. John F.
Ehlers
> Squelch functions to distinguish between trending and trading
ranges)
> or when the price is consolidating. One can get whip-sawed and
make
> several losing trades under these trendless conditions.
>
> This function is inherently a trend-following study. It increases
> the stop level each successive day until the 10th day that the
market
> is still trending. At this point, it raises the stop level
> proportionally daily. This is due to the observed fact that 10-day
> runs are extremely rare. These long runs do occur however they
only
> occur around 5% of the time. So this works magnificiently in
trends
> and miserably in congestion or consolidation periods, but works
well
> when combined with a 3BSMA stop during the initial stages (when the
> start of the new trend is not yet confirmed and you want a tight
stop
> just in case the new trend did not start. Doesn't mean that you
were
> wrong in trading it, just that sometimes it takes a long time for a
> new trend to develop and most people don't have the guts to buy
when
> everybody else is selling and sell when everybody else is buying
and
> that is one of the reason most traders lose and ofcourse they may
> also lack patience and also adequate capitalization, money-
management
> (PositionSize, MaxOpenPos, MaxRisk, PositionScore etc.,))
>
> Any feedback appreciated. TIA.
>
> rgds, Pal
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