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At 4:50 PM -0500 12/21/01, Mike Higgs wrote:
> > Most fixed point-values of stops, etc., can be adapted by relating
>> them to the price or the volatility with measures such as
>> AverageTrueRange. The AverageTrueRange of daily bars of the Nasdaq
>> composite index has varied from about 20 to about 300 over the past 3
>> years. To expect any system with fixed limits to work well over such
>> a range of volatility is unrealistic.
>
>Ummmm. Seems to me this is going down the wrong path entirely. If ATR
>expands, you don't want your stops to expand along with it unless they are
>still within your acceptable risk limits. If they aren't, you stop trading
>until ATR comes back within your risk limits. While I agree with you that
>fixed limits won't work over the kind of ATR range that you describe, I
>don't think the solution is to make them adaptive.
You would be right if you are trading at the limit of your risk. In
that case, you might do the above plus modify the number of contracts
traded to stay within your risk limit:
NumCon = Floor(Factor * RiskLim / (AverageTrueRange * BigPointValue));
If the AverageTrueRange gets too large, the number of contracts will
go to zero so you will not trade those signals. But later, if your
account gets larger, RiskLim may increase so then you will take those
trades.
Bob Fulks
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