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Hi guys,
I'm quite puzzled by people not trusting on the backtest results.
As I stated earlier, my system has a stop order factored in, which
means it stops out whenever the stock hits my stop price.
As for a 3% stop, it is not a tight stop in my opinion. I am arguing
for two points.
1. Ask any daytrader if they are happy to net a 3% gain from a stock
in a day. My guess is they are more than pleased. Well, if they are
pleased for a 3% gain for a day, they would obviously be very unhappy
about a 3% loss, which is the opposite side of the spectrum.
2. I've placed a deeper stop (7%) and stopped out. It is simply too
much to lose in one day's trading, especially because I'm on margin.
I think I lost more than 10%, in terms of my cash because I was all in
with margin power and lost out 7%.
I'm in no way to try convincing anyone about the 3% stop, I'm merely
speaking from my experience. And remember, this is a daytrading
strategy, not a swing or holding-for-a-month strategy. I would not
use 3% stop for longer holding strategies.
Regards,
intermilan04
--- In amibroker@xxxxxxxxxxxxxxx, Yuki Taga <yukitaga@xxx> wrote:
>
> Hi Bob,
>
> Tuesday, April 18, 2006, 1:04:44 PM, you wrote:
>
> BJ> Stop loss vs. stop limit?
>
> How could it matter? The former will not guarantee execution at a
> specific price, and the latter will not guarantee *any* execution,
> ever.
>
> Also, intermilan04 wrote (below) that his system is a daytrading
> system so that there are no gaps. AFAIK, gaps can develop anytime
> intraday, although they are somewhat rare. But here in Tokyo a stock
> gaps any time there is an order imbalance of a requisite amount. And
> while somewhat rare, it is far from unknown to have stocks suddenly
> become bid-only or ask-only intraday in response to a sudden influx
> of orders (or one big one) on one side or the other.
>
> (Often the best response to this is to immediately fade the impending
> gap with a market order, as it's either a mistaken entry amount by
> someone, or an emotional overreaction, or maybe a single large seller
> who has reached a sell target.)
>
> I think the points of most responders to this thread however would
> break down as follows:
>
> 1) It is a truly rare system that does not suffer performance
> degradation from using stops. Personally, I don't think I have ever
> seen one that didn't suffer thusly.
>
> 2) Stops that are very tight (I consider 3 percent pretty darn tight)
> are going to get banged when it doesn't really mean anything (except
> that the trader has now booked a loss), and it's much better to use
> some volatility determined stop, based on say the last 50 or so bars,
> rather than to put a flat percentage on it. Many stocks have
> different volatility characteristics. Three percent on one would be
> nothing, while three percent on another would set off alarms.
>
> 3) One has to be able to take a 3 percent negative move in underlying
> price, most of the time, IMHO. That doesn't mean taking 3 percent
> portfolio hits of course. It means you have to adjust position size
> so that 3 percent of price is within risk bounds.
>
> 4) Stops are really to prevent one from getting into *serious*
> trouble, rather than to cut losses to a "comfortable" amount. Yes,
> they are risk control devices, but they are best used well outside
> normal volatility ranges, as protection against very significant
> losses, rather than as triggers for comfortable losses. (If the
> amount is *that* comfortable, the stop will get hit, as I mentioned
> above.) If a system needs more than the emergency stop, it probably
> isn't a system I'd want to trade very enthusiastically.
>
> All of this ultimately applies to backtesting of course -- the
> original thrust of this thread. The problem with stops and
> backtesting is obvious: you cannot guarantee anything, so you have to
> use wider slippage, which makes your metrics much less meaningful.
> The larger the percentage of exits triggered by stops, the less
> backtest results are likely to imitate real trading.
>
> It might be a nice idea as a feature to be able to include that
> number however, in a back test report. I think it would be useful
> for some to understand what percentage of their exits were triggered
> by stops, and what the possible implications of that might be.
>
> My two yen,
>
> Yuki
>
> BJ> Fred,
>
> BJ> Could you explain as to why 3% wouldn't always limit losses to 3%?
> BJ> Assuming the stock has some volume (at least 100K), and I set stop
> BJ> loss order as soon as I buy stocks...I'm not quite sure of the
> BJ> circumstances where 3% stop loss would not work.
>
> BJ> My system is a daytrading system so there is no gap ups and downs.
>
> BJ> Regards,
>
> BJ> intermilan04
>
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