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Hi intermilan04,
Let me take a shot at that one. ^_^
At least here, there are *plenty* of stocks with a wide bid/ask
spread, even stocks that trade 10 million shares or more a day. It
depends on the stock, and on the time of day, and on the overall
market.
Moreover, even with bids and offers up and down the line, you might
be *amazed* at how quickly those bids can vanish in response to some
negative event, or how one really *large* at market offer (not
yours), or a bunch of at market orders hitting at the same time, can
move the stock suddenly out of the congestion zone, where there are
air pockets galore. Your stop has to be "at market" of course (not
stop-limit), or you have no assurance of ever getting out. Most
people don't have privileges to see the entire bid-ask tree. They
don't see the (sometimes *huge*) air pockets that are lurking above
and below the current congestion zone. A stop loss at market only
guarantees you'll get out. It absolutely does *not* guarantee you'll
get out at some minimum percentage loss. Often? Maybe. But you
can't bank on it. And the problem is, when you really need it,
that's when it becomes problematic.
Yuki
Tuesday, April 18, 2006, 11:52:06 AM, you wrote:
i> Fred,
i> Could you explain as to why 3% wouldn't always limit losses to 3%?
i> Assuming the stock has some volume (at least 100K), and I set stop
i> loss order as soon as I buy stocks...I'm not quite sure of the
i> circumstances where 3% stop loss would not work.
i> My system is a daytrading system so there is no gap ups and downs.
i> Regards,
i> intermilan04
i> --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <ftonetti@xxx> wrote:
>>
>> Just keep in mind that a 3% stop loss does not necessarily limit
>> losses to 3% ...
>>
>> --- In amibroker@xxxxxxxxxxxxxxx, "intermilan04" <intermilan04@>
>> wrote:
>> >
>> > Phsst,
>> >
>> > I don't like the trade drawdown more than the system drawdown. I
>> used
>> > to think that having a large trade drawdown was OK as long as the
>> > system drawdown was small, and I think I was wrong.
>> >
>> > As a daytrader I take and close out positions daily. Imagine having
>> > lost 7% on a single trade and having to close out the position at
>> the
>> > end of the day...you just registered a huge loss. You are left with
>> > negative emotion, frustrated because of the lost money. You start
>> to
>> > worry about your trading capability and such. I know it's
>> > psychological stuff but quite important one IMO.
>> >
>> > So, as I mentioned earlier I limit my loss at 3%, no matter what.
>> For
>> > whatever reason or for no reason, if stock moves 3% against me, I
>> get
>> > out. I'd rather not lose 3%, but settling for a 3% loss is
>> certainly
>> > better than not having a stop and have a potential to lose big.
>> >
>> > --- In amibroker@xxxxxxxxxxxxxxx, "Phsst" <phsst@> wrote:
>> > >
>> > > Fred's point is accurate IMO....
>> > >
>> > > If the Trader has spent blood, sweat and tears over a period of
>> years
>> > > building up a serious trading equity, then a 28% System Drawdown
>> would
>> > > be demoralizing (only after causing a serious case of "Butt
>> Pucker").
>> > >
>> > > A subsequent post from Ed showed a 'Max Sys DD = -3.6%', but only
>> > > included 48 trades... which because of the small number of trades
>> > > seemed to me to be statistically irrelevant.
>> > >
>> > >
>> > > --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <ftonetti@> wrote:
>> > > >
>> > > > A Comment and a suggestion ...
>> > > >
>> > > > - DrawDowns ... I could be wrong but I suspect most people
>> can't
>> > > > tolerate 28% DD's ... To bring that number down to the point
>> where
>> > > > at least some people would be comfortable with it using real
>> money
>> > > > one would I think have to cut it half. Doing that with an
>> existing
>> > > > system by restricting how invested one is will result in the
>> CAR
>> > > > being reduced to the square root of its original number.
>> > > >
>> > > > - Objective Testing ... Take your data, cut in half ...
>> Optimize
>> > > > your system over half of the data and then test the parameter
>> values
>> > > > on the other half. This rudimentary view of out of sample
>> testing
>> > > > will give you some idea of what you are likely to experience in
>> real
>> > > > trading as opposed to totally in sample results.
>> > > >
>> > > > --- In amibroker@xxxxxxxxxxxxxxx, "intermilan04"
>> <intermilan04@>
>> > > > wrote:
>> > > > >
>> > > > > Since I have optimized my system between 1996-2006, I guess
>> the
>> > > > > answer would be the same time period.
>> > > > >
>> > > > > --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <ftonetti@> wrote:
>> > > > > >
>> > > > > > That doesn't answer my question ...
>> > > > > >
>> > > > > > In the development of the system what range of data ( time
>> > > > period )
>> > > > > > did you use ? The same time period ? An earlier one ?
>> > > > > >
>> > > > > > --- In amibroker@xxxxxxxxxxxxxxx, "intermilan04"
>> <intermilan04@>
>> > > > > > wrote:
>> > > > > > >
>> > > > > > > The numbers are the result of backtesting my system with
>> > > > > > > NASDAQ and NYSE tickers (around 7000 tickers) between
>> > > > > > > 1996/1/1~2006/1/1.
>> > > > > > >
>> > > > > > > --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <ftonetti@>
>> wrote:
>> > > > > > > >
>> > > > > > > > Are the numbers you posted in sample or out of sample ?
>> > > > > > > >
>> > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx, "intermilan04"
>> > > > <intermilan04@>
>> > > > > > > > wrote:
>> > > > > > > > >
>> > > > > > > > > I know it depends on what you want personally for
>> > > > risk/reward,
>> > > > > > but
>> > > > > > > > I'm
>> > > > > > > > > curious as to what other people's systems (developed
>> in
>> > > > > > Amibroker)
>> > > > > > > > are
>> > > > > > > > > performing like. You don't have to share your code or
>> the
>> > > > idea
>> > > > > > behind
>> > > > > > > > > your system (unless you want to), but I'm curious.
>> > > > > > > > >
>> > > > > > > > > Over the last 10 years, say, what is your annual
>> profit %,
>> > > > max
>> > > > > > > > > drawdown, % winning trades, etc.?
>> > > > > > > > >
>> > > > > > > > > I have a long system that has returned around 110%
>> since
>> > > > > > 1996. Its
>> > > > > > > > > winning % is 47%, and the system drawdown is 28%. It
>> is a
>> > > > > > > > > reversal-based, swing-daytrade system.
>> > > > > > > > >
>> > > > > > > >
>> > > > > > >
>> > > > > >
>> > > > >
>> > > >
>> > >
>> >
>>
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