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In a message dated 7/26/98 2:35:47 AM, bved01@xxxxxxx 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.
>
>>
What do you care about what the market cares about. It is your capital and
you have to care about it or go broke. Always limit your risk and preserve
your capital, the market isn't going to look after your capital regardless of
where you place your stops. There are no perfect stops, they are either too
close or too far away so realize this and then decide which less than perfect
method is going to help you achieve your desired results and preserve your
capital.
Maybe the best method should be "all of the above". Multiple stops are a good
idea and help you be prepared for all contingencies. We get to enter markets
on our own terms under our exactly specified conditions. We have to be
prepared to exit under unknown conditions which we do not dictate or control.
The secret to good trading has always been in the exits not the entries.
Here is an example of multiple exits in our "25 X 25" Bond System.:
If marketposition = 1 then begin
Exitlong Lowest(L,25) stop:
If barssinceentry>=24 then exitlong Lowest(L,2) stop;
End;
{Install $2,500 money management stop under System Stop Settings}
Chuck LeBeau
traderclub.com
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