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Brian,
I understand your point. I also think that Kase has the best exposition of
multiple timeframes and insights into what one might do with them than
anyone else. Her discussion, IMO, beats out Elder's and clearly beats out
the guy who thinks he can even patent a word because of the more simplistic
ideas that he discusses in his book (i.e., Mr. Krausz). IMO, even though I
don't have it coded in a system but would love to have it, Kase's discussion
of "Scaling Up in Timeframes" alone is worth the price of the book.
I read the "Secret of my Success" note from the gentleman who talked about 5
people committing suicide because of futures losses with sadness. (There
but for the grace.....) I think it's terrific that Sweeny's MAE is now
available in Portfolio Maximizer. I just finished his Campaign Trading.
Terrific book. The cost of that book plus the $500 for PM is alot but still
smaller than the kinds of losses the idea and tool might save one from.
The net to pull this and that "Success Secrets" thread together: My bet:
The "Success Secrets" in 5 years of those who take the time to effectively
learn and use the new tools will be different than some of those we just
read. There will be more of a tool focus.
Steven Buss
Walnut Creek, CA
sbuss@xxxxxxxxxxx
"There's nothing more practical than good theory."
-----Original Message-----
From: Brian Massey <bnm03@xxxxxxx>
To: 'List, Omega' <omega-list@xxxxxxxxxx>
Date: Sunday, July 26, 1998 11:05 AM
Subject: RE: Stop Placement Concept Question
>Steven,
>
>I wonder if all this statistical work, despite how cool and technical it
>sounds, is really worth the effort and would yield significantly different
>results than a much simpler approach. For example, the Cynthia Kase model
>uses SD to calculate a two bar stop while others use all kinds of
>qualifying rules, while some prefer tried and true methods like MA and
>volatility. Some even like fitting distributions and on and on. Arrrgh.
> Calgon, take me away!!
>
>Here's a method that takes into account most of the concepts presented so
>far-- take a 30 day average of the range and multiple by 2. There's your
>average two bar stop, your volatility based indicator and any smoothing you
>wish to factor in. Done, simple and it works. Now you can spend your time
>doing other things which is most likely why you trade in the first place.
> I think it's more valid than pulling at least 30 samples over the past 5
>years because price action like this is about the last 90 days not what
>happened 5 years ago.
>
>Or to simplify it more, place your stop above the high 2 days ago.
>
>It seems that the Kase method of selling software is to write a book
>promoting the idea then sell the math for a ridiculous sum in software.
> Why would anyone buy her books if she's not going to provide a complete
>solution? The formulas are part of the overall process and she's more or
>less misleading the customer into thinking there are going to get a
>complete answer when they buy her book. I would learn from the math she
>uses too not just the ideas and that's what I expect to get when I buy her
>book. Needless to say, her book has the most dust on my shelf.
>
>-----Original Message-----
>From: Conrad Bowers [SMTP:cpbow@xxxxxxxxxxxxx]
>Sent: Sunday, July 26, 1998 9:49 AM
>To: Bill Vedder
>Cc: Steven Buss; omega-list@xxxxxxxxxx
>Subject: Re: Stop Placement Concept Question
>
>Bill Vedder wrote:
>>
>> Steven Buss wrote:
>> >
>> > There appear to be at least 3 concepts for thinking about stop place
>ment:
>> >
>> > 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
>
>
>Cynthia Kase in "Trading with the odds" describes (partially) a
>statistically derived stop. Her stop is placed at a distance to
>withstand "2-bar reversals". She measures a mean value and the standard
>deviation and places the stop at (mean + n*sigma) away fro the price
>action. However the exact formulas are not given. I'm not sure if she
>is measuring historical reversals and averaging them or just saying a
>2-bar reversal is 2 times the current avg-true-range. If the latter,
>you would just get the average and sigma of ATR and then you could
>calculate the stop. (This was an interesting book, but i had the same
>"complaint" in various places: while the general idea was explained,
>actually formulas or procedures were rare; i guess to have that you have
>to buy her software. Maybe that's only fair, but....) In any event,
>she recommends using 3sigma for staying with a trend and 1 sigma if
>warning signs of the end of the trend exist.
>
>Al Gietzen in "Real Time Futures Trading" does use a stop that is:
>avgRng/2 + n*sigma. He uses an exponential avg to get the average range
>and suggests n should be 1.8-2.5. He smooths the stop and then places
>the stop this distance away from the daily price midpoint. It should be
>noted that this was in context of a system trading cycles and he
>anticipated many trades would be reversed by a signal, not stopped out,
>so these stops (or at least the suggested n) may have to be modified if
>the stops are the primary exit.
>
>I have to wonder if it's worth the trouble to do statistical analysis to
>the point of finding sigmas. Sure, you are finding the distribution of
>the last 15 or 30 days or whatever but the next ten days may be a
>different "population". Certainly basing stops on current volatility
>makes sense. But is calculating the stops to be a distance of avgrng +
>n*sigma away, any better than just using n*avgrng?
>
>Colin Alexander in Five Star Futures Trades, suggests chart-based stops
>but with certain modifications when the stop would be too far away. For
>example, never more than a limit move away, or in markets without
>limits, never more than n*margin. He suggests looking at 60 min. charts
>to see if there is a chart based stop on that timeframe near where you r
>desired distance is. Of course, now we are getting into a considerably
>more discretionary mode or at least one that is harder to test with TS.
>
> Conrad Bowrers
>
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