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Chuck:
Just had to get my two cents in on this topic. I've been using a particular
system with reasonably good success for about a year and a half now. If
there is any criticism that can be levied at this system's performance, its
that the system tends to give back too much profit. Currently, the only
stops I use are disaster prevention stops to prevent a catastrophic loss of
capital. If I ever hit one of these stops, then I've set the stop too
close. I've tried many ways to stop out sooner, but to no avail. My latest
attempt has been the volatility stop found in Tushar Chande's book "The New
Technical Trader". As you may know, there is even a reentry mechanism in
this stop should the price reverse and resume its previous trend. However,
using this stop does significantly reduce system performance sometimes even
turning a very successful system into an abject loser.
I was very optimistic about the Volatility Stop at first. I admire Steve's
ability to devise indicators that apparently seem to give very reliable
signals. However, I am reluctant to use FibCMO and BB Histogram because
there is no way to measure the risk one is willing to take and remain in the
system. Steve says he trades without stops. As we all know, there is no
guarantee that the equity will go up (or down) or that he will ever get an
exit signal. In theory, one could lose all capital risked in any given
trade following this type of trading system, and I am just not comfortable
with that. I thought at first that the volatility stop added onto either of
these indicators would be a way define the risk in the trade without
adversely affecting (at least by too much) the system performance, but so
far the results have not been promising.
So far I've not been able to discover that "ideal trading system" as you
advocate. I will keep looking, but for now we trade without stops.
Respectfully
Jeff
-----Original Message-----
From: CRLeBeau@xxxxxxx <CRLeBeau@xxxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: Thursday, April 13, 2000 10:20 AM
Subject: Re: Money Management Stops
>Many times traders believe that stops cost them money because they get
>stopped out and then the market makes a big move and they miss it.
>
>The stop is not to blame in these situations. The mistake is in not
getting
>back in. Missing big moves is not the fault of the stop - it is the fault
>of the entry (or lack thereof).
>
>I have often advocated that an ideal trading system should have an entry
>method and a re-entry method for the trades that get stopped out.
>
>We also need to remember that our biggest losing trade (and our biggest
>winning trade) have yet to be seen. This fact makes many popular money
>management strategies overly aggressive. Its best to employ a conservative
>strategy and make sure you have the staying power that allows you to apply
>your trading advantage over a long period of time.
>
>Chuck
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