|
PureBytes Links
Trading Reference Links
|
Steven Buss wrote:
>
> There appear to be at least 3 concepts for thinking about stop placement:
>
> 1 Place a stop at a fixed dollar amount based on how much money I can
> afford to lose <G>
> 2 Place a stop at some market price level that is determined by a
> technical indicator (e.g., a level at which support/resistence is broken
> (i.e., a breakout), moving average crossover, momentum indicator turn, etc.)
> 3 Place a stop at a fixed dollar amount based on trading system
> backtesting and then doing MAE analysis (see Sweeny, "Campaign Trading" for
> a discussion of MAE, Ruggerio for TS code that exports data for Excel graph
> of MAE, Omega's new Portfolio Maximizer does MAE) (Also, Pierre sometime in
> the last several months posted some TS code related to MAE)
>
> Are there other CONCEPTS around which stop placement may be thought about
> that I've missed?
>
> Obviously, listing #1 above is a joke for the oft stated reason that the
> market doesn't care about my personal capital requirements.
>
> I have a question related to concepts 2 and 3 above.
>
> - One reads that trading systems should first be backtested without
> stops. I assume that what is meant by this recommendation is that stops are
> coded into the system based on technical indicator concepts (i.e., by the
> kind of concepts in #2 above). Am I right in this assumption?
>
> Steven Buss
> Walnut Creek, CA
> sbuss@xxxxxxxxxxx
> "There's nothing more practical than good theory."
I can think of two more; stops based on time and stops based on statistical
methods.
I don't know how time periods are selected for time based stops. Others on the list
are much more knowledgable about this method and may care to speak to this.
I've not tried the statistical method (and it's been a long time since I read the
paper) but it was based on measuring the size of all reactions against prominent
trends and fitting a distribution to the data. The authors used an exponential
distribution. You then selected a probability level and calculated the size of the
stop from the distribution. If interested, I can dig around and find the reference.
Regards,
Bill Vedder
|