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John/
An article in the September 1998 TAS&C, "Trading the Trend" by Andrew
Abraham, was about one form of stoploss exit: subtract some manipulation
of the true range from the highest high (or add it to the lowest low)
and exit when the close crosses that. Members of Chuck LeBeau's Traders
Club will recognise the "Chandelier Exit".
Here's my version of it (for MS v 6.5). I've written it this way to
make it easy to change the lookback periods and the multiplier.
Name: Trading the Trend
Pds:=21;
Mult:=3;
TruRan:=Mov(ATR(1),Pds,W)*Mult;
HiLimit:=HHV(H,Pds)-TruRan;
LoLimit:=LLV(L,Pds)+TruRan;
If(C>HiLimit,HiLimit,LoLimit)
1. After closing the Indicator Builder click on the Expert Advisor (the
guy in the bowler/derby hat).
2. Click on New, then the Name tab, type in Trading the Trend.
3. Click on the Highlights tab, select the first line so that it is
highlighted, click Edit, type in the name Uptrend, select Colour Blue,
select Condition, type in C>FmlVar("Trading the Trend","HiLimit"),click
OK,
4. Still on the Highlights tab, select the second line, click Edit,
type in the name Downtrend, select Color Red, select Condition, type in
C<=FmlVar("Trading the Trend","HiLimit"), click OK, click OK again.
5. If you have a chart open that you want to use this on, click Attach,
otherwise click Close. In the latter case, when you open a chart and
plot the trendline, click on the Expert Advisor, select Trading the
Trend, and click on Attach.
I've given the Expert steps in detail for any who may not be familiar
with its use. To experiment with variations in the lookback periods and
the multiplier you can do so in either the Indicator Builder, or
right-click the indicator on the chart, select Properties, then the
Formula tab, and make the changes (e.g. try a lookback period of 10, and
a multiplier of 2.5). As implemented above, the Expert should change
accordingly. This shows the trade-offs that have to be made between
near and distant stops. This is too rudimentary to be traded as a
system - the whipsaws would chop you to pieces - but the exits should
help to limit drawdowns.
A very similar stoploss is given in Chande & Kroll "The New Technical
Trader", pp.167 - 169, "Volatility-Based Trailing Stops". My preference
is to plot both the high and the low exit lines in contrasting colours,
dispensing with the switch between them, and dispensing with the
Expert. If anyone wants help with the code, just say so. And if I've
screwed something up again, say so.
Harvey Pearce, Victoria, B.C., Canada
=====================================
John Manasco wrote:
>
> After reading several posts recently by some new and old participants in
> the list I would like to start a discussion of my favorite subject,
> namely loosing money. It seems there is a lot of confusion about when to
> get out of a stock or commodity. Most of that confusion is between my
> ears.
>
> First when you purchase a stock or commodity when do you pull out if the
> position moves against you? Second, how much do you let your position
> fall thinking that it's just a retracement a will continue the move?
> Could someone explain how to use stops properly? Especially trailing
> stops. Do I need em? I am getting mad watching my profits evaporate and
> go into losses.
>
> Last week I went flat in my portfolio. I sold all my stocks and kept all
> my option straddles. Then I fretted all week that I had missed the
> bottom and would miss the next up move. That's when I realized I have
> too much emotion involved in my decisions. I have always said I don't
> have a good exit strategy but I didn't realize just how much my emotions
> were playing into it. Now I question my entry strategy too, and that's
> pretty much mechanical. The subjective part is whether or not to
> actually put the trade on.
>
> Everyone tells me about fear and greed dominating trading decisions. I
> also think I have listened too long about my time frame and goals. I
> have been investing for ten years and trading for maybe five. Over that
> time people have told me to invest for the long run, let my profits
> ride, don't be swayed by short term blips, decide what time frame I want
> to trade and all the other admonitions about trading. This has served to
> confuse me more than help me as I made the transition from investor to
> trader.
>
> So I admit it, I sometimes lose money because of my exit strategies. A
> lot more than I would like to admit. So what are some of your thoughts
> on exiting a position. I really hope I get a lot of feedback on this
> because this is really important to me, and it seems to a lot of other
> people too.
>
> John Manasco
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