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Well, yes....I suppose that word would also work. :-) The problem of course,
is say you took several 5R losers in a row. Then you might not get the same
results. However, whether we admit it or not, even trading a system,
emotions do play a role, in terms of having fear during drawdowns and the
inability to stay with a system. There is no way to know how smart or
"stupid" we are until after the trade has been entered (and exited for that
matter), and it gets harder during drawdown periods. I think many people
are much more disciplined in backtesting than actual execution, and this can
dramtically affect actual trading results.
Your idea of an optimum stop level on entry is very interesting, and I have
pursued it for some time, but I do not have the answer. But you are right,
a tighter one can allow a larger position size, and if it doesn't get hit,
larger profits.
Sincerely-
Ron
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx
[mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of Jeff Ledermann
Sent: Sunday, March 18, 2001 11:02 PM
To: metastock@xxxxxxxxxxxxx
Subject: RE: Profit Stops
>...
> we have now. Certainly you're not suggesting having the courage to go
> without a stop will be best, so I think I'm missing your point here.
>
> Sincerely-
> Ron Scott
I think the word you should have used was stupidity not courage :)
Dave is sort of right - test it for yourself if you don't believe this.
Almost every system will show lower profits with stops and profits will
decrease as stops are made tighter.
Now the other side of the coin is that tightening stops (to some minimum
point) reduces drawdown which means that the equity required to trade the
system decreases. This means that with a given account size you can trade
more contracts, which means that as you tighten stops you make more money.
Obviously there is an optimum stop level where you minimize drawdown and
maximize the winning percentage of trades.
Jeff.
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