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Joe...
I can definately relate to your findings after years of testing for all
maners of exist techniques myself. It's very interesting to hear of some
of the great traders using fewer and simpler TA as they see the answer
is not in some new indicator but inside themselves. I just read a very
clear article on this subject by Scott Brown in the Sept. TAS&C. I would
specifically point out the last paragraph on page 35 referencing Dr.
Tharp's research.
Thank you for a truely excellent post with a great deal of insight.
... John
Arsk0jn@xxxxxxx wrote:
>
> Since there has been much discussion of this subject lately, I thought I would
> pass along a discussion Larry Williams and I had at one of his seminars in the
> '80's regarding stop losses. Larry said that he had done extensive study into
> the subject as to where to put stops and had come to the conclusion that it
> didn't make any difference where you put your stops from a profit/loss
> standpoint excluding commissions. In other words, the market behaved in a
> completely random manner over the short term with regard to the current price
> giving a risk/reward ratio of 1.0. My own research over more than 40 years has
> not been able to refute his conclusion. If for the moment you accept his
> research, the logical place to put stops then should be based on a trader's
> comfort zone and should be consistent for like trades. That is, you ask
> yourself. "How much am I willing to risk on trading the DMark (for example)
> and you consistently place your stops accordingly.
>
> For a number of years, I programmed trading systems and have seen well over
> 350 systems. Many sold for thousands of dollars. Some were just curve-fitting
> markets for a relatively short period of time (several years) based on trading
> stops. You can put together a profitable commodity system by looking at where
> to place stops for that time period. A good example of this is the DMark
> system that was in the April issue of TAS&C. The analysis of the article was
> to use a 0.70 stop on both long and short positions. You would have had two
> trades since the issue came out--both with over $1,000.00 losses. If you look
> at the period used to determine the recent stop value of 0.70 you will see
> two occasions where a 0.70 stop just missed taking you out of positions which
> subsequently proved profitable. If you have been trading the next-out contract
> you would have been whipped out of both (June, 1990 (B) & Nov., 1996(S)) for
> large double-losses on each.
>
> My own opinion is that there are support/resistance levels in the market
> where, if the price is reached, it will trigger a number of orders that will
> move the price rapidly through this area. These are where others, using their
> own TA systems, have determined that stops should be placed. I have seen a few
> systems (usually for commodities) that try to identify where these points are
> and place buy/sell orders to capitalize on this volatility.
>
> This note has already gotten longer than I had intended, but hopefully it will
> be "food for thought" for some of you in that if you are looking for the Holy
> Grail through placing your stop orders, IMO you won't find it and would be
> better served spending time on other areas of your system.
>
> Good trading,
> Joe Nemecek
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