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This is a post in regards to mechanical systems in case any
discrecionary
traders don't care to finish the post. However, their comments are
welcome.
An IntraDay system by definition already has a stop. You are stopped out
each day to begin anew tommorow. For my systems, this typically means
that the same system(without exiting at the end of the trading session)
loses
25% of it's annual profits but also reduces thr drawdown by 60% when
end-of-session stops are applied. For my tastes, this is a good trade
off.
Beyond the end-of-session stop, I have NEVER found an acceptible
intraday stop strategy!
Drawdown tends to increase in whipsaws leaving your broker with higher
profits for the day than you. The whipsaws occur in both sideways and
trending days no matter what the exit strategy is based upon.
Unless you hit a lucky curve fit while testing, drawdown increases and
profits
decrease. Applying this lucky curve fit severely breaks down the
robustness
of the system when applying to other data sets or realtime.
In my opinion, intraday stops, while increasing the complexity of an
intraday
system, always exponentially increase the number of possible compromises
to the
robustness of the system.
Bottomline:
Whipsaw days really hurt and I don't want to encourage more of them.
Watching a trade go against me all day in the opposite direction hurts
too but also
leaves me feeling like an idiot until I've recouped the losses.
So. Am I ignorant? Is their a stop strategy out there that is , more
consistantly than not,
worthwhile to implement or should I continue to close my eyes and let it
ride?
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