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At some point in this discussion, it was suggested that stop-loss be
placed placed on volatility (ATR), not a fixed number or a percentage
of price. So if, for example, your volatility-based stop is 2-3
standard deviations away from your entry, meaning that if *that* gets
hit you are very likely on the wrong side, it does help you in the
long run. However, this stop amount has to be placed so that it makes
sense mathematically (statistically) and in regards to your system;
placing it based on some fictious overoptimized number based on the
past will obviously be very fragile. Also, a stop placed like this on
the basis of volatility, and placed properly, will get hit very
seldom; positive expectancy has to be built in from the start so that
will take care of the day-to-day performance.
Ivo Karindi
>> >Hi Dave: Let's say I am trading a simple SAR system and I buy a
>> >long breakout with a $4000 risk. If I wait until the short
>> >reverse signal, I lose $4000. If I put in a $1500 stop, haven't I
>> >saved $2500- - all other things being equal. I agree that
>> >arbitrary stops have no relation to market action- - they are more
>> >of a psychological crutch- - but they can, and do, prevent
>> >catastrophes. Much more complicated than Gallacher makes it seem.
>> >Regards, Jack.
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