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Hi Chuck,
He said the system uses a built-in
> Tradestation money management stop of $1500.
This is the part that I don't understand. Why not hard-code the stop into
the system and thereby avoid any chance of bouncing-tick fakery?
Actually I have a more basic problem. How is it legitimate to use a fixed
stop on something like the SP where the volatility has increased by about 20
times over the years? A similar problem occurs when you backtest using a
fixed contract size, as all your systems seem to do. Correct me if I'm
wrong. Say back in 1982 when the average move was about 1 - 2 points per day
you were trading 20 contracts. But for the same account size would you still
be trading 20 contracts today, when 20 - 40 point moves are common? I think
not!
I invite you to go back and re-test your long-term SP systems with the
following adjustments:
1. Figure contract size to be normalized for price and volatility, i.e.
size=dollarswing/(atr*bigpointvalue)
2. Do a similar thing with the stops, i.e. exitlong entryprice-factor*atr
You will find that trades in the past take on a new significance. Your
systems will probably crash and burn but at least now the profit/loss
figures will represent actual trading. Be sure and let us know.
Sincerely,
Phil
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