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Hi Darryl,
As we all know exiting is muuuuch more difficult than buying. The reasons are
obvious:
- either you are (... or I am (I don't exclude myself for a moment here))
taking losses, but you can always delude yourself about a wrong decision as
long as you haven't actually sold the equitity
- or the issue doesn't perform; once again a mistake was made,
- or the equity is climbing and climbing, and greed or fear of heights makes
you get off too late.
So, developing a consistent selling system is maybe more important than a
buying system.
Apart from the obvious but all too often ignored old saws about money
management, I've had some not unpleasing results ;-7 with a combination of
Price Channels, Parabolic SAR, and Chande & Kroll's Volatility Based Stop.
Follows the formula for the StopATR (as I've christened it):
=============================================
Long:=Input("Long/Short(1/0)",0,1,1);
LenATR:=Input("LenATR",2,50,10);
LenPeakC:=Input("LenPeakClose",5,100,10);
LenPeakS:=Input("LenPeakStop",5,100,20);
Factor:=Input("Factor",1,5,3);
MaAtr:=ATR(LenAtr);
HhvC:=If(Long,HHV(H,LenPeakC),LLV(L,LenPeakC));
TmpStop:=If(Long,HhvC-MaATR*Factor,HhvC+MaATR*Factor);
GetOut:=If(Long,HHV(TmpStop,LenPeakS),LLV(TmpStop,LenPeakS));
GetOut
=============================================
You should fiddle around a bit with, oops I mean optimize, the variable
"Factor" until you're comfortable with it for your market. Chande & Kroll cite
1.5 for a tight stop, and 3 to 4 for a looser stop.
Hope this helps. Kind Regards & Happy Trading,
Jan Willem roberts
Darryl D'Lima, MD wrote:
> Bill Saxon wrote:
>
> > What is the groups opinion of using a stop on
> > each security of perhaps "Protect 90% of Capital and 90% of the Gain
> > over 5%", or some variation thereof, and rely it to get out of the
> > Market to the extent warranted? I just get tired of fretting about
> > it.
> >
>
> Bill,
>
> It is difficult to come up with fixed stop losses that work consistently
> for all stocks. This may only be useful if you are emotionally
> uncomfortable with losing more than a certain amount of your
> capital/profit. If you are trying to minimize your losses while hoping
> not to get stopped out during temporary correction you have to be more
> flexible.
>
> You might want to set your stop loss based on the volatility of the
> stock. One simple method is mentioned in Brian Millard's book "Winning on
> the Stock Market". He suggests isolating trends in the past history of
> each stock which you would like to trade and adjust the value of the stop
> loss to keep you in the market for the optimum period and optimum profit.
> You could optimize in one period and test it in another. Another useful
> technique described is channel analysis and exiting at the top of the
> channel.
>
> If you don't believe in optimization, the parabolic SAR could be useful,
> as this progressively raises and tightens the stop loss. In the standard
> metastock indicator, the step size can be adjusted (rate of rise of the
> stop loss) and also the maximum value the step can reach, but not
> dynamically (unless you write a custom formula).
>
> Jeff Katz has published several variations of exits/stop losses in Tech
> Analysis of Stock & Commodities, Feb, 98, where he describes fixed exits,
> trailing exits, profit target exits, time-based exits, volatility exits,
> barrier exits and signal exits. In the March issue he discusses how to
> test your exit strategies.
>
> Darryl
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